Downey v Crawford

background 3 It is necessary to set out a chronology of relevant events. The second plaintiff was originally registered on 25 July 1996. It was then known as "Navigator Investment Research Pty Ltd", and bore that name until 1 March 1997. On 2 March 1997, its name was changed to "InvestorSource Pty Ltd" ("InvestorSource"). On 3 August 1999, its name was changed again, this time to "ACN 075 004 643 Pty Ltd". Having since been put into liquidation, it is now known as "ACN 075 004 643 Pty Ltd (in liq)". 4 Mr Andrew Crawford was appointed a director of the company on 25 July 1996. He was also at all relevant times the registered proprietor of the business name "Quantum Analytical Services". Mr Gilbert Crawford is Mr Andrew Crawford's father. He was appointed a director of the company on 29 September 1997. 5 The company's business involved essentially the preparation of reviews of financial advice given by others. It was akin to that of a ratings agency. It was apparently operating successfully when it entered into negotiations for the sale of the business with Standard & Poor's (Australia) Pty Ltd ("Standard & Poor's"). Those negotiations eventually broke down amid acrimony, and the defendants threatened litigation. The dispute was resolved and on 3 September 1998, a confidential deed of settlement was executed. Standard & Poors agreed to pay the sum of US$50,000 to settle the dispute. 6 Standard & Poor's made three payments to the company under the deed of settlement. These were: · $6,181.10 paid to the company's solicitor on 3 September 1998, and deposited into his trust account at the direction of the company ("the first payment"); · $77,427.90 paid by way of bank cheque on 3 September 1998, and deposited into the company's bank account with the ANZ Bank ("the second payment"); and · $19,139.49 paid by way of bank cheque on 29 June 1999, and endorsed by the first defendant in favour of BT Funds Management Ltd, and deposited into a BT Funds Cash Management Account in the name of the company ("the third payment"). 7 As part of their overall claim, the plaintiffs allege that, on or about 3 September 1998, Mr Andrew Crawford falsely recorded the second payment as a loan to the company by the defendants when, in truth, it was nothing of the kind. It was simply the company's own money, paid to it by Standard & Poor's. This allegation is directed solely against Mr Andrew Crawford. 8 The main claim, brought against both Crawfords, arises out of a meeting of the directors that took place on 4 August 1999. It is alleged that during the course of that meeting, the defendants, purportedly acting under s 436A of the Corporations Law,resolved to put the company into administration. However, they knew, or ought to have known, that the company was not then insolvent, and unlikely to become so at any future time. Accordingly, the plaintiffs claim, the decision to appoint an administrator (Mr Downey) was taken without any proper justification, and involved a breach of their duty to the company. 9 The plaintiffs also advance an alternative contention. They say that if the directors genuinely regarded the company as being insolvent as at 4 August 1999, that view was only arrived at by reason of the false entry recorded in the company's books by Mr Andrew Crawford. 10 The next complaint made against Mr Andrew Crawford relates to the report as to affairs of the company that he signed on 10 August 1999, six days after the appointment of Mr Downey as administrator. The plaintiffs claim that this report was false in that: · it recorded Mr Andrew Crawford as an unsecured creditor of the company in the sum of $211,421 when in fact he was only owed $96,824; · it recorded Mr Gilbert Crawford, and his wife Debra, as unsecured creditors of the company in the sum of $54,133 when in fact they were owed nothing at all; · it failed to disclose the existence of the BT Funds Cash Management Account with its credit balance of approximately $22,000; and · it omitted any mention of the fact that there was an amount of $72,500 unpaid on Mr Andrew Crawford's shares in the company. 11 On 27 August 1999 a meeting of the company's creditors was held. The meeting resolved to wind up the company. By reason of the operation of s 446A of the Corporations Law, upon the making of that resolution Mr Downey automatically became liquidator of the company. For convenience sake, this may be described as "the first liquidation". 12 The plaintiffs allege that at some point during the three days leading up to the first liquidation, Mr Andrew Crawford instructed BT Funds Management to pay to him, under the name "Quantum Analytical Services", all of the money credited to the company in the BT Funds Cash Management Account. On 27 August 1999, a bank cheque in the sum of $22,213.64 drawn on that account was paid to Mr Andrew Crawford. Again for convenience sake, this may be described as "the fourth payment". 13 The plaintiffs say that the fourth payment was made during the company's administration or, alternatively, during the first liquidation. They claim that the payment was unauthorised. By reason of s 471A, and/or s 437C(1) of the Corporations Law, Mr Andrew Crawford had no power to act on the company's behalf in instructing that the payment be made, or in receiving it. Accordingly, they contend that he is liable to repay that sum to the company as "moneys had and received". Alternatively, the payment was void pursuant to s 437D, and should be recovered. 14 The next significant event that occurred was Mr Downey's decision, on 27 October 1999, to appoint himself administrator pursuant to s 436B(1) of the Corporations Law ("the second administration"). That sub-section authorises a liquidator, or provisional liquidator, to appoint an administrator "if he or she thinks that the company is insolvent, or is likely to become insolvent, at some future time". Section 436B(2) allows a liquidator or provisional liquidator to appoint himself or herself under subs (1). 15 On 24 November 1999 the company's creditors resolved that it execute a deed of company arrangement. This was done on 27 November 1999. 16 On 9 June 2000, Mr Andrew Crawford wrote to Mr Downey asking him to call a meeting of the company's creditors for the purpose of putting a resolution to them to terminate that deed of company arrangement. On 28 June 2000, a meeting of creditors so resolved. The meeting also determined that the company should be wound up. Upon the passing of these resolutions, and by virtue of s 446A of the Corporations Law, Mr Downey was again appointed liquidator ("the second liquidation"). 17 The plaintiffs also make a series of separate allegations against Mr Andrew Crawford. Some of these arise out of the proof of debt that he submitted to Mr Downey on 14 October 1999. In that proof of debt he claimed that the company was indebted to him in an amount of $211,421. The plaintiffs allege that Mr Crawford's claim was false in that: · he claimed an amount of $38,854 in respect of wages for the year ending 30 June 1997 when, in truth, he was owed nothing; · he claimed an amount of $61,133 in respect of wages for the year ending 30 June 1998 when, in truth, he was owed only $51,507; and · he claimed an amount of $82,625 in respect of wages for the year ending 30 June 1999 when, in truth, he was owed only $72,625. 18 The plaintiffs also allege that the proof of debt falsely claimed an amount of $25,809 owing, pursuant to what has been described as "the false loan" when, in truth, the money in question always belonged to the company. 19 On 29 May 2000, Mr Downey gave notice to Mr Andrew Crawford that the proof of debt had been rejected. 20 The plaintiffs also allege that Mr Gilbert Crawford, and his wife submitted a false proof of debt on 22 September 1999. They say that he lied when he claimed that he and his wife were owed $54,133 when, in truth, they were owed nothing. This claim is also said to be part of what is described as "the false loan". 21 On 10 May 2000, Mr Downey gave notice to Mr Gilbert Crawford and his wife that he had rejected their proof of debt.

the causes of action pleaded 22 The plaintiffs claim that the defendants, by putting the company into administration at a time when it was neither insolvent, nor likely to become so, contravened the Corporations Law. They also claim that the defendants thereby breached their fiduciary duty to the company. They further claim that, in breach of his fiduciary duty, Mr Andrew Crawford created the entry regarding the false loan, and that he misappropriated the company's funds when he caused BT Funds Management to make the fourth payment. They say that he misled the company when he signed a false report as to its affairs, and again when he submitted his proof of debt containing various false claims. 23 A similar allegation is made against Mr Gilbert Crawford in relation to the proof of debt submitted on behalf himself and his wife. 24 The plaintiffs say that, by reason of these various breaches of duty, the company has suffered loss and damage. The particulars of that loss and damage are set out at par 39 of the Statement of Claim and are as follows: "Costs of First Administration $13,829.20 Costs of First Liquidation $11,990.33 Costs of Second Administration & DOCA $47,117.85 (Costs of Second Liquidation to date) $34,863.75 Legal Costs $94,597.55

Less (Est. costs of Members Voluntary Liqu.) $10,000.00"

25 In other words, the plaintiffs claim that the company was forced to incur expenses that were entirely unnecessary simply because the directors failed to carry out their duties in a proper manner. They claim that the company is entitled to recoup those amounts, whether as general damages, or pursuant to s 598 of the Corporations Act. 26 It should be noted that the plaintiffs have an entirely separate and distinct claim against Mr Andrew Crawford relating to calls on unpaid shares. They allege that on 28 January 1998, he was issued with 11,111 shares at $2.25 per share, and that those shares were never paid for. They further allege that about a month later, on 28 February 1998, he was issued with an additional 4,444 shares at the same price, and that those shares too were never paid for. Finally, they claim that on 2 July 1999, he was issued with 37,500 shares at $1.00 per share, for which no payment was ever made. The total amount said to be owing in relation to these three separate bundles of shares is $72,500. They claim that they are entitled to recover that sum pursuant to s 483(2) of the Corporations Act. That sub-section confers upon the Court the power to make an order directing any contributory for the time being on the list of contributories to pay to the company any money due. They rely upon the fact that Mr Downey, acting under ss 478(1A) and 506, settled a list of contributories which, pursuant to s 506(2), is prima facie evidence of the liability of those named to pay the amounts claimed.

the defences raised in the pleadings 27 The defences raised in answer to the plaintiffs' allegations, as set out in the statement of claim, may be briefly summarised. 28 In substance, Mr Andrew Crawford denies any impropriety in relation to the fourth payment. He says that the sum of $22,213.64 paid out of the BT Funds Cash Management Account was money to which he was entitled, representing a one-third share of an amount of approximately $77,000 paid by Standard & Poor's to settle the dispute that had arisen regarding the abortive purchase of the business. He claims that he acted on legal advice in treating that sum as his own. 29 In answer to the claims made regarding the money said to be owing for unpaid shares, Mr Andrew Crawford says that he made full payment for the first two lots of shares that were issued to him. In relation to the third bundle of shares, his claim is that these shares were never actually issued. 30 Both defendants deny any impropriety, or breach of duty, in having resolved, on 4 August 1999, to put the company into administration. They say that they acted upon Mr Downey's advice. They claim that they genuinely believed, on reasonable grounds, that the company was insolvent, or likely to become so. They reject the plaintiffs' allegation that they overstated the amounts that were owing to them, or that they failed to disclose all of the company's assets. 31 Mr Gilbert Crawford also puts his defence on a slightly different basis. He says that when he agreed to place the company into administration, he acted entirely upon the advice provided by both his son, and Mr Downey. He says that, given the circumstances under which the meeting of the board took place, he was entitled to act upon that advice. 32 With regard to his proof of debt, Mr Gilbert Crawford insists that his claim for $54,133 was entirely valid. That claim was prepared with the assistance of Mr Downey, and with his full knowledge of the relevant circumstances.

the manner in which the trial was conducted 33 Before summarising the evidence led during the course of the trial, it is necessary to say something about the manner in which this case was conducted. Until almost the very last moment before the trial commenced, the defendants were unrepresented. Not surprisingly, their pleadings were barely coherent. The position was made even worse by their numerous attempts to file what might loosely be termed cross-claims. As best I could understand them, these cross-claims alleged that Mr Downey was solely responsible for the decision to put the company into administration. Any losses that were sustained resulted entirely from his actions. 34 There were also many difficulties associated with the defendants' inability, or unwillingness, to comply with procedural and interlocutory orders. It soon became apparent that there was no prospect that they could prepare affidavits, or witness statements, in anything like admissible form. In those circumstances, it seemed to me that the best course was to have the evidence given viva voce, with only broad outlines of what would be said provided to the other side. 35 Ultimately, the defendants were able to retain an experienced solicitor, Mr William Coady. However, he had only a short time to prepare their case, and nothing could be done to cure the shambles that their pleadings were in. 36 The trial extended over a significant number of days, and eventually concluded on 15 December 2003. Unfortunately, there was then a falling out between Mr Gilbert Crawford and Mr Coady. Mr Gilbert Crawford claimed that Mr Coady had failed to carry out his instructions. Mr Andrew Crawford on the other hand, made no complaint. 37 On 19 December 2003, Mr Gilbert Crawford wrote directly to my Associate complaining about Mr Coady's final submissions, and informing her that Mr Coady's retainer had been terminated on 16 December 2003. The letter attached correspondence between Mr Gilbert Crawford and Mr Coady, and other documents dating back long before the trial. 38 On 24 December 2003, the matter was brought on for mention at my instigation. On that day I directed that any communication that Mr Gilbert Crawford desired to make to the Court be made through the Registry, and not with my Associate. 39 On 5 January 2004, Mr Coady filed a notice of withdrawal of solicitor indicating that he no longer acted for Mr Gilbert Crawford. However, he continued to act for Mr Andrew Crawford. Thereafter, Mr Gilbert Crawford attempted on several occasions to place further evidence before the Court regarding the matters in dispute between the parties. He attempted to file a number of affidavits, and wrote several letters to the Court's Assistant Director, Operations, Mr David Priddle. In accordance with my instructions, Mr Priddle did not show me the affidavits, or the letters. He simply informed Mr Crawford that if he wished to seek leave to reopen his case, he would have to do so by notice of motion, supported by appropriate affidavit material. 40 On 17 February 2004, Mr Gilbert Crawford filed a notice of motion, and an affidavit in support, seeking such leave. He then filed further affidavits in support of his notice of motion. On 12 March 2004, there was a return of that notice of motion before me. At this hearing, Mr Gilbert Crawford was represented by Mr Jeremy Whelen, instructed by Mr Christopher Bunnett. Mr Whelen was not in a position to proceed that day, but sought an adjournment. I granted that adjournment, dismissed the notice of motion then before the Court, and granted leave to file a further notice of motion seeking leave to reopen his case. I also emphasised to Mr Whelen the importance of ensuring that there were to be no further communications between his client personally, and my chambers. All communications were to pass through the solicitors who were now on the record, or Mr Whelen. 41 Notwithstanding this direction, Mr Gilbert Crawford continued to correspond with Mr Priddle enclosing documents that he desired me to read. These documents were placed in a sealed envelope and marked "not to be opened without the leave of a judge". I have not read them. In the end no further notice of motion was filed. On 8 April 2004, Mr Bunnett filed a notice of withdrawal of practitioner.

the evidence on behalf of the plaintiffs 42 Mr Downey was the only witness to be called on behalf of the plaintiffs. He said that he was a partner in the firm Cole Downey, a Fellow of the Institute of Chartered Accountants specialising in insolvency, an Official Liquidator of the Supreme Court of Victoria and a registered Trustee in Bankruptcy. He was presently engaged in the winding-up of the second plaintiff. 43 Mr Downey said that he first met Mr Andrew Crawford in 1997. They were introduced by a mutual acquaintance over lunch. According to Mr Downey, Mr Crawford said that he needed "some advice of an insolvency nature" in relation to a company of which he was a director. The lunch took less than two hours and the discussions regarding the company occupied not more than fifteen to twenty minutes. 44 The two men next met at Mr Downey's office about a month later. Mr Crawford's purpose in arranging the meeting was to obtain further advice relating to the company and, in particular, to discover what might constitute insolvent trading. Mr Downey said that Mr Crawford provided him with a one or two page trial balance sheet. According to Mr Downey, he gave general advice regarding directors' duties in relation to insolvency. Many months later, he billed Mr Crawford for that advice. 45 Mr Downey said that in about December 1997, he first met Mr Gilbert Crawford, and thereafter had a series of discussions with him. These concerned Mr Gilbert Crawford attempts to obtain urgent funding in order to keep his son's company afloat. Mr Downey understood that Mr Andrew Crawford was overseas at the time. According to Mr Downey, Mr Gilbert Crawford at one point expressed delight that the company appeared finally to have found a buyer for its business. The buyer was Standards & Poor's. Mr Crawford told him that the business had been sold for "millions", and therefore the problem seemed to have gone away. 46 Some time later, after Ernst & Young had conducted a due diligence on its behalf, Standard & Poor's resiled from the agreement. The company was left without a suitor. Mr Downey suggested to the Crawfords that they discuss the sale of the business with an acquaintance of his, Mr John Selak, from Ferrier Hodgson, Corporate Advisory, who had far more expertise in mergers and acquisitions than he did. 47 Mr Downey's next contact with the Crawfords came in late July or early August 1999, when they again consulted him. By that stage, Mr Downey understood that they had successfully concluded an arrangement to sell the business to Flinders Capital Investments Pty Ltd ("Flinders"). They wanted to know how to proceed from there. Mr Downey was aware that the purchase price agreed was $360,000. It was to be paid in three monthly lots of $20,000 and a final payment of $300,000. Shortly afterwards, he was told that the deal had been consummated. He was also told that the money had been paid into the company's bank account, although some of it was being spent in order to keep the company running. 48 According to Mr Downey, he then had a further discussion with Mr Andrew Crawford regarding the company's future. Mr Downey said that it was possible that Mr Gilbert Crawford had also participated in that discussion. Mr Andrew Crawford told him that the company owed him more than $200,000. He also said that the company owed his father about $57,000. He asked Mr Downey whether it would be possible for them simply to withdraw these amounts from the company's bank account in order to meet its debts. Mr Downey told him that he could do so provided there were no other creditors. That immediately gave rise to a problem. Two former consultants to the company, a Mr McGlashan, and a Mr Smith, both claimed to be creditors. Mr McGlashan claimed that he was owed about $60,000, while Mr Smith claimed that he was owed about $40,000. Mr Andrew Crawford said that Mr McGlashan was an extremely difficult person to deal with. He was reputed to be a serial litigant, having previously been involved in several costly and lengthy commercial disputes. He said that the last thing that he wanted was to become involved in litigation with either of these gentlemen. 49 Mr Downey said that he told Mr Andrew Crawford that in these circumstances it would be sensible to have someone independent come in, and attempt to head off any such disputes. That would require the Crawfords to remove themselves from the management of the company. This could be done by the appointment of an administrator who would control the company's business, property and affairs. In due course, the company would be wound-up, with the administrator being appointed as liquidator. 50 Mr Downey said that he briefly canvassed other alternatives with Mr Andrew Crawford. These included the possibility of a deed of company arrangement. However, the company was basically nothing more than a cashbox, which needed to be divided up equitably among the stakeholders in accordance with the priorities set out in the Corporations Law. A deed of company arrangement seemed to Mr Downey to be an inappropriate mechanism for achieving this result. 51 I should perhaps interpolate here that if the amounts said to be owing to the Crawfords were added to the amounts claimed by Messrs McGlashan and Smith, there was likely to be a shortfall in the company's assets. 52 Mr Downey was asked whether, as a result of what he had been told by Mr Andrew Crawford regarding the company's assets and liabilities, he had formed any view as to whether or not it was insolvent. He said that his view was that the company was insolvent. 53 As previously noted, on 4 August 1999, the directors resolved to put the company into administration. Pursuant to s 439C of the Corporations Law, Mr Downey was appointed as administrator. 54 Mr Downey said that after his appointment, he took the usual steps to secure the company's assets. For example, he wrote to the company's bank, arranging to have its bank account frozen. However, before doing so, he authorised Mr Andrew Crawford to draw a cheque for approximately $250,000. Mr Downey invested that sum in a new account in the company's name. Subsequently, he closed that account and transferred the balance of the monies to himself. 55 Mr Downey said that his other activities were essentially procedural. These included lodging various requisite documents with ASIC. On 10 August 1999, he convened a first meeting of creditors. On that day, Mr Andrew Crawford provided him with a report as to the affairs of the company. 56 The first meeting of creditors did not put forward any proposal for a deed of company arrangement. Accordingly, on 27 August 1999, at a second meeting of creditors, it was resolved that the company be wound up. Mr Downey was appointed liquidator. By that stage, he had been provided with a number of financial statements regarding the affairs of the company. These included directors' minutes, details of shareholdings, various negotiations concerning the sale of the business to Flinders, and other records of a formal kind. 57 It is important to note that omitted from the documents provided to Mr Downey were the terms of settlement that had been reached with Standard & Poor's on 3 September 1998. Also missing were any documents that referred to that settlement, or indeed to the BT Funds Management Account. According to Mr Downey, he did not learn of the existence of that account until almost two years later, after Standard & Poor's responded to a request for information regarding a cheque for $19,139.40 that it had paid to the company. Mr Downey found out about that cheque only as a result of the fact that the Australian Taxation Office had lodged a proof of debt in about February or March of 2000. That led him to question Mr Andrew Crawford, who then produced additional bank records showing a deposit of about $77,000 a year or so before Mr Downey's appointment. Mr Downey described the annotation on the deposit slip as "curious". So too, he said, were the subsequent drawdowns of two cheques within the next few days, each of approximately $25,000. An annotation regarding the payment of a cheque for $25,809.30 was "GC loan". Another annotation regarding the payment of a similar amount was "AC cash". Both annotations were said to be in Mr Andrew Crawford's handwriting. 58 According to Mr Downey, it was only at about that stage that he recalled that there had been some earlier correspondence between the company and Standard & Poor's. He had been shown that correspondence by Mr Gilbert Crawford. He was then asked about the two annotations regarding the payments of $25,809 and said: "Mr Downey, when you saw those entries, what did you then do?---I started picking back through my brain as to what might have occurred. I remembered that at about that time there had been some correspondence between the company and Standard & Poor's, some correspondence of which I had been given copies of by facsimile from Gilbert Crawford at the time, although that did not extend to the conclusion of the negotiations which subsequently transacted resulting in the amount being paid. I also recalled having heard that Andrew had received some payment from Standard & Poor's, but obviously that was outside of my purview up until then. I recalled that Mr James Higgins had been the solicitor acting for the company at that time, so I telephoned him and asked whether I could come around to review his file on the matter - initially he objected, saying that ‑ ‑ ‑ Sorry, Mr Downey, if you can just say what you then did?---I then went to his office and reviewed the company's file, and found on that a copy of the deed of settlement. That led me to contact Standard & Poor's, and I requested that I come to their office for a meeting, and at that meeting I indicated that I was the appointed liquidator and would like to see what records they had regarding this transaction. After getting clearance through Allens, their solicitors, on a telephone hook‑up, they agreed to hand over and fully cooperate with me. HIS HONOUR: Mr Downey, you said that prior to seeing the deed of settlement you had some information about Andrew Crawford having possibly got some money from Standard & Poor's - where did that information come from?---I believe Gilbert Crawford had mentioned it in conversation some many months before, but it hadn't really registered at the time as being a potential asset or source of funds for the company. I was not privy to the detail of whatever had gone on between Standard & Poor's and the company, other than to know that Standard & Poor's had pulled out of the transaction at the last minute and the company was left without a buyer. But you didn't, as it were, connect the dots?---No, I didn't. You knew that Standard & Poor's had pulled out and you knew - or were told that Standard & Poor's had made some payment to Mr Andrew Crawford ‑ ‑ ‑?---That's right." 59 Mr Downey was then asked whether he could recall when he had the conversation with Mr Gilbert Crawford to which reference was made in the passages set out above. He replied that it would have been prior to his appointment as administrator. 60 Returning to the events of 1999, Mr Downey was asked about the circumstances in which he had applied to the Supreme Court of Victoria to have the company, then in liquidation, put back into administration. He explained that he had been approached by a solicitor representing the Crawfords. They were upset by the fact that Mr Andrew Crawford had been passed over for the position of director of a public company because he was, at that stage, the director of a company in liquidation. According to Mr Downey, he was asked on behalf of the Crawfords to stand aside as liquidator. He replied that he could see no basis for doing so. He advised that there had to be an application to the Court, pointing out that such an application could be made if, for example, a deed of company arrangement were executed which would operate to the advantage of the creditors generally. He said that one way in which such a result could be achieved was if the Crawfords were prepared to pay at least 50% of the costs of the administration, and to subordinate their debts to those of the other creditors. 61 On 27 September 1999, the Crawfords filed a notice of motion in the Supreme Court seeking orders staying the winding-up, and again appointing Mr Downey as administrator. The notice of motion expressly stipulated that, after Mr Downey's reappointment, the winding-up would be terminated. The Crawfords also proposed a deed of company arrangement. On 21 October 1999, Mandie J made orders in those terms. 62 On 24 November 1999, the creditors resolved that the company execute a deed of company arrangement. Mr Downey was appointed the deed administrator. 63 According to Mr Downey, on 9 June 2000, Mr Andrew Crawford requested him, under s 445F(1)(b) of the Corporations Law, to convene a meeting of creditors to terminate the deed of company arrangement. Mr Downey arranged for that meeting to be held on 28 June 2000. The meeting resolved to terminate the deed, and once again place the company into liquidation. Despite having asked Mr Downey to call the meeting, Mr Andrew Crawford actually voted against the motion to terminate the deed. He was the only creditor to do so. Be that as it may, Mr Downey was again appointed liquidator on that day. 64 On 24 October 2001, Mr Downey commenced this proceeding. He said that he had, by then, formed the view that, contrary to what was indicated in the company's books and records, the $25,809.30 claimed by each of the Crawfords was not a loan by them to the company, but rather a payment by the company to them. Accordingly, he had rejected the claims for these amounts from their proofs of debt. When asked specifically about a meeting that he had with Mr Andrew Crawford on 16 May 2000 regarding his proof of debt, Mr Downey said that he did not immediately make known to Mr Crawford the fact that the deed of settlement with Standard & Poor's had come into his possession. He wanted to see whether, given the opportunity, Mr Crawford would volunteer any information about any payment made under that deed of settlement. Later in the meeting, he challenged Mr Crawford about his claim that the $25,809.30 had been a loan to the company as stated in the proof of debt, "or in fact the reverse". According to Mr Downey, Mr Crawford "prevaricated". He eventually explained that his legal advisor had told him that he personally was entitled to a third of the settlement monies. Mr Downey told Mr Crawford that he did not share that view. 65 In further elaboration, Mr Downey said that Mr Crawford had initially claimed that the $77,000 deposited in the company's bank account with the ANZ Bank had been "his money" and that it had only been deposited in that account because he did not have one of his own. He said that the cheques that were subsequently drawn on that account in favour of his father and himself simply reflected the fact that they were entitled to a third each, leaving a third in the company. However, he also said that the third left with the company was a loan, thereby implying that the entire amount had been his money, or his father's money. 66 Mr Downey was then taken in detail to Mr Andrew Crawford's proof of debt. As previously indicated, he had rejected that proof of debt in part. He provided a detailed explanation as to why various amounts claimed were rejected. For example, he rejected a claim for unpaid salary in the amount of $38,854.40 for 1997 in its entirety on the basis that the audited accounts of the company disclosed that no salary was owing. Similarly, he rejected claims relating to unpaid salary in later financial years because the amounts in question exceeded those set out in the relevant resolutions of directors, which accompanied the proof of debt. 67 Finally, Mr Downey was asked whether, as at 4 August 1999, he would have recommended a voluntary administration had he known the true position of the company. He replied that he would have regarded the company as solvent on that date, and recommended that it be wound up voluntarily. This would have incurred costs of no more than $10,000-$15,000. Instead, by reason of the misleading information that he had been given, he had recommended an administration followed by a liquidation. That in turn had required a further administration and a further liquidation. Vastly greater costs had been incurred, quite unnecessarily. 68 Mr Downey also claimed that Mr Andrew Crawford owed the company various amounts relating to what he regarded as "unpaid shares". He said that he had reached that conclusion by reference to various documents. These included a document of particular significance that he described as the "Term Sheet". 69 Mr Downey's evidence on this point was brief, and is set out below. "MR EVANS: One last matter. Might the witness be reshown exhibit P8. Mr Downey, that's the bundle of documents regarding the settlement of the list of contributories. Can you go to document 541, form 541, which is the settled list of contributories?---Yes. Mr Downey, in that document, you determined that Mr Andrew Crawford had issued to him how many shares?---95,507 shares. Do you recall how you reached that determination?---I do. How was that?---By reference to the Term Sheet and other documents relating to the various issues of shares by the company, I think of which there were four. When you say the term sheet - might the witness be shown exhibits P9 and P10. Mr Downey, exhibit P9 is the Term Sheet?---That's correct. In what way did you rely upon the Term Sheet?---On the page carrying the date 2 July, page 2, summary item (c) reads, "AGC owns 95,507 ordinary shares of $1 each, fully paid, in the capital of ISPL, and serves as ISPL's chief executive officer." And that's a document that's signed by Mr Crawford?---It is. Mr Andrew Crawford?---Yes. Mr Downey, in addition to settling the number of shares Mr Crawford held, you reached a conclusion as to the amount which was unpaid on those shares? ---Yes. What amount did you conclude was unpaid?---I think it's $72,500 or thereabouts. Yes, $72,500. And how did you reach the conclusion that amount was the unpaid amount on the shares?---By reference to the books and records of the company, I established how much had been paid on each of the issues of shares and therefore how much had not been paid. In other words, the receipts of the company. HIS HONOUR: You treated that as an asset of the company?---The 72,500, your Honour? Yes?---Yes, I did." 70 Mr Downey was cross-examined at some length. He was first asked about the sum of $72,500 that he claimed remained unpaid in relation to shares issued to Mr Andrew Crawford. It was suggested to him that he had based that conclusion solely upon the "Term Sheet". He accepted that this was largely true, though he said that he had also relied upon several other documents, including a bundle of share certificates, and applications for shares, apparently signed by Mr Andrew Crawford. The common seal of the company had been affixed to those documents. 71 The Term Sheet is of considerable importance in this proceeding. It is dated 2 July 1999, and purports to record an agreement reached between three parties. These were Flinders on the one hand, and InvestorSource and Mr Andrew Crawford on the other. Under the terms of that agreement, Flinders would purchase the company business. Importantly for present purposes, recital C was in the following terms: "AGC owns 95,507 ordinary shares of $1.00 each fully paid in the capital of ISPL and served as ISPL's chief executive officer." 72 Recital C was significant, so far as the Term Sheet was concerned, because the price to be paid for the business, at one time, involved an issue of shares in the new company that was to be established to operate it. The number of shares to be issued was linked to the number of shares held in InvestorSource. Accordingly, the more shares held by Mr Andrew Crawford, the greater the amount that he would receive for his previous interest in the business. It is to be noted that Mr Andrew Crawford signed the Term Sheet, both in his capacity as an individual, and on behalf of the company. 73 Mr Downey was asked how he had arrived at the figure of $72,500 as being the amount owing on the supposedly unpaid shares. He said: "I erred on the conservative, in that from the other records of issues of shares I was able to deduce how many had been accounted for in the folder - the share registry, if you will; then there was a gap between that amount, the total of those four issues, and the amount of shares quoted on the Term Sheet…." 74 Mr Downey said that he did not become aware of the Term Sheet and, in particular, recital C, until quite late in the piece. After discovering this document, he went through the process of settling a list of contributories. He said that the documents originally provided to him by the Crawfords were in such a confusing state that he had been forced to attempt to reconstruct the shareholding. It had taken him some time to produce what he considered to be a definitive picture. Importantly, when shown documents that did not accord with recital C, and asked whether he could state positively that they were inaccurate, Mr Downey replied, "No, I can't". 75 Mr Downey was then taken in detail to the various documents that purported to record shares ostensibly issued to Mr Andrew Crawford. He agreed that on 20 May 1997, 39,631 shares had apparently issued. On 31 July 1997, a further 2,820 shares had issued. On 21 January 1998, 11,111 shares were recorded, and on 28 February 1998, a further 4,444. When these four bundles of shares were aggregated, the total number of shares issued came to 58,006 (including one subscriber share). That was roughly 30% of the total number of 144,000 shares recorded on the register as having, by that stage, been issued. What Mr Downey then did was to subtract the 58,006 shares recorded as having been issued to Mr Andrew Crawford from the 95,507 shares identified in recital C. That led to a figure of 37,501. It was that figure that he used when calculating the amount allegedly owed by Mr Andrew Crawford in relation to unpaid shares. 76 Mr Downey then explained how he had arrived at a figure of $72,500 in relation to unpaid shares. He said: "The difference between 95,507 and 58,007 is 37,500. That was $1 shares, therefore it's $37,500. I add to that $25,000, which is owing in relation to the issue of 11,111 shares on 28 January 98, for which I could find no entry in the cash receipts journal for that $25,000. Further, there was an amount of $10,000 still owing in respect of the fifth issue on 28 February 1998 for 4444 shares, together with a premium of $5556. So $25,000 plus $10,000 plus 37,500 comes to 72,500." 77 When challenged about the difference between his claims regarding unpaid shares in this proceeding, and several earlier reports that he had filed with ASIC which indicated that all of the company's shares were fully paid, Mr Downey confessed to an oversight on his part. He said that the reports lodged with ASIC had been erroneous. He acknowledged that Mr Andrew Crawford had always denied having been issued with 95,507 shares, notwithstanding what was set out in recital C. He further acknowledged that he had been told that the Term Sheet had never been put into effect, and indeed that it had been superseded and replaced by a quite different agreement. The Term Sheet contemplated an issue of shares by Flinders to the then existing shareholders of the company in proportion to the shares that they then held. Ultimately, however, the business had been sold for cash. Nonetheless, Mr Downey explained: "Did you know the basis upon which Flinders Capital Investments was to acquire the business of InvestorSource?---My understanding is that it was a negotiated position that had several forms at different times. At one such time, there was proposed that there would be shares allocated by Flinders Capital to the existing shareholders of InvestorSource in accordance with the shares that they then held. Ultimately I think that that didn't form part of the agreement but it seemed to me that that document comprised an admission by Andrew Crawford that he had somehow issued to himself this 37,500 extra shares, which would have been to his benefit in the event that that was how the Flinders Capital deal went. So I thought that one should be hoisted on one's own petard." 78 When asked to explain what he meant by "hoisted on his own petard", Mr Downey replied: "Well, it seemed to me that it was a very convenient position to have, to on the one hand allege to Flinders Capital, "Here I am, I have 95,507 shares," which would have been on the basis of an allocation of further shares by Flinders Capital, if that was the way the deal went, but then conveniently not show any record within the company records of such an issue so that you could swing either way, depending on which way the deal went. It seemed to me that as it had been completed and signed by him under seal, and by Flinders Capital, whilst it may not have been the final document, it was certainly to me fairly compelling evidence that such shares had been issued or agreed to be issued. Agreed to be issued, as distinct from issued?---The document said that they had been issued as fully paid‑up $1 shares, but there was no evidence of it being paid‑up. If the document was prepared for the purpose of gaining an additional benefit from Flinders as a result of the acquisition but did not actually reflect an issue of shares, you would still regard the document as proof of an issue of shares? In other words, it was prepared as a contingency with a view to getting a greater amount for himself out of the ultimate acquisition?---Why then if it was only a draft document was it signed by Flinders on the other side? So it was the fact that it was signed on the other side that influenced you into treating it as an actual issue of shares or reflecting an issue of shares?---It did." 79 Mr Downey acknowledged that he had been unaware, prior to the trial of this proceeding, that Flinders might have drafted the Term Sheet. He said that whether this was the case did not particularly interest him. When pressed as to whether he might have come to a different conclusion regarding the "unpaid shares" had he known that the document was not drawn by Mr Andrew Crawford, and might have contained factual errors, he acknowledged that this was indeed possible. He also accepted that, had he had that knowledge, he might have carried out further enquiries. 80 Mr Coady next cross-examined Mr Downey with regard to his earlier dealings with Mr Gilbert Crawford. It was suggested to him that as far back as 1997 both the Crawfords had been concerned about the survival of the company, particularly since other investors were apparently shy about contributing capital. Mr Downey agreed that he had assisted Mr Gilbert Crawford in preparing a letter to one of those investors, Mr Clive Batrouney, which contained a reference to the fact that the company might be put into administration as a result of Mr Batrouney's unwillingness to contribute capital. Apparently, Mr Batrouney at that stage occupied a senior position with the Australian Stock Exchange. Presumably, he would have been embarrassed if the company had gone into liquidation. 81 It was then suggested to Mr Downey that he had been aware in 1998 that Standard & Poor's were contemplating buying the company's business for an amount "in the millions", and that it had backed out of the deal after a due diligence. Mr Downey recalled a figure of $1.5 million as having been mentioned. He described Mr Gilbert Crawford as having been, at that stage, delighted about the situation. He recalled that the deal had broken down in late June 1998. Not surprisingly, the Crawfords were deeply upset and concerned about the future of the company. They wanted to know whether it should be put into administration or whether they should look for another buyer. Mr Downey recalled having seen two letters that Mr Gilbert Crawford sent to Standard & Poor's complaining about the damage done to the company by its having backed out of the deal. It was at that stage that he referred the Crawfords to Mr Selak. Mr Downey also gave some advice regarding the need for an injection of funds into the company. He conceded that, at that stage, its financial position appeared parlous. The company had no cash, and plainly could not continue to trade. 82 Mr Downey claimed that he knew nothing about the terms of settlement involving Standard & Poor's until approximately May 2000. He discovered those terms only after having had certain records delivered to him on or about 11 April 2000. He acknowledged that some time between July 1998 and January 1999 Mr Gilbert Crawford had mentioned the payment of a substantial sum - he thought it was $70,000 - to Mr Andrew Crawford. However, he took little notice of what Mr Gilbert Crawford had said at the time. 83 It was suggested to Mr Downey that relations between the Crawfords and himself had totally broken down by the early part of 2000. They were constantly complaining about how he was handling the liquidation. By April 2000, the correspondence between the parties had become "very blunt and … acrimonious". 84 When questioned further about Mr Gilbert Crawford's having mentioned that Andrew had received a sum of money, Mr Downey said that he had been told that the payment had been made "to effectively shut him up" because Andrew Crawford was threatening to go to the press, and to ASIC, challenging Standard & Poor's licence to operate in Australia. In other words, Mr Downey regarded the payment as "hush" money. It did not occur to him, at that stage, that it might in fact be an asset of the company. 85 In February 1999, the Crawfords told Mr Downey that Flinders was interested in purchasing the company's business. He understood that over the next few months there were ongoing negotiations regarding the deal, and there was some discussion regarding a possible winding-up of the company once the business was sold. Mr Andrew Crawford had concerns about the two major creditors, Messrs McGlashan and Smith. He had been unable to resolve the amounts said to be owing to them. It was for that reason that Mr Downey proposed the appointment of an administrator, thereby avoiding the anxiety associated with that dispute, and reducing the risk of litigation. 86 Mr Downey was asked by Mr Coady why, when he concluded some time between 10 August 1999 and 27 August 1999, that there was a deficiency of about $90,000 (based on what he had been told by Mr Andrew Crawford) he did not simply ask the defendants to reduce their claims by that amount, and pay out all the other creditors 100 cents in the dollar. He replied, "I could have done but I didn't". 87 When Mr Downey was asked about his rejection of part of Mr Andrew Crawford's proof of debt, he agreed that at least with regard to the financial year ending 30 June 1997, Mr Crawford had waived his unpaid salary. However, he denied having heard it said before that he had only done so on the basis that others would also waive their entitlements. It was suggested to him that his reliance upon a resolution or resolutions by the board to compute Mr Crawford's entitlements for later years was misplaced because those resolutions may have contained errors. He agreed that Mr Andrew Crawford's contract of employment entitled him to remuneration based on a 52-week year whereas the resolutions in question assumed a working year of only 47 weeks. In other words, they omitted the month of January, during which Mr Crawford took his vacation. Mr Downey said that where the contract was in conflict with a resolution of the board, he would act only upon that resolution. He said that cl 2.1 of the contract, which provided that the company did not have to pay Mr Andrew Crawford if he was not present at work, justified his decision to delete just over a month each year of Mr Crawford's claims in his proof of debt. 88 Mr Downey was then asked some questions about a file note dated 1 June 2000 that he had made regarding a conversation with Mr James Higgins, the solicitor who was advising the Crawfords regarding their dispute with Standard & Poor's. According to the file note, Mr Higgins told Mr Downey: "If asked to give evidence, he would have to say that Standard & Poor's really wanted to shut up the Crawfords, particularly Gilbert." 89 Mr Downey was also taken to a letter dated 3 September 1998 written by Mr Higgins, and addressed to Mr Andrew Crawford. In that letter, Mr Higgins responded to a request for advice regarding apportionment of the settlement sum, as between the parties to the deed of settlement of that date. He said, inter alia: "Considering that InvestorSource Pty Ltd and Messrs G. and A. Crawford are each parties to and bound by the restrictions and releases contained in the Deed, in my view there is equity in splitting that sum in three equal portions between those three parties. This allocation would also be supported by the fact that the main motivation for Standard & Poor's entering into the Deed was the actions and words of the Crawfords since the time when the negotiations were aborted at the instance of Standard & Poor's." 90 Mr Downey claimed that during the course of his discussion with Mr Higgins, on 1 June 2000, Mr Higgins came round to his view of the matter. His file note of that conversation recorded the following statement: "But I said anything they did they did as directors of InvestorSource and they would not be able to simply take the monies as their own. He [Mr Higgins] agreed." 91 Neither side chose to call Mr Higgins to give evidence in this proceeding. 92 Finally, there was some cross-examination of a general kind directed towards Mr Downey's credit. He was challenged about the effect of a settlement reached at mediation with Mr Gilbert Crawford. It was suggested that the present case was an abuse of process given that a number of the matters now pleaded had been the subject of that settlement, and had therefore been compromised. That suggestion was rejected. Mr Downey was also attacked for having forcibly evicted Mr Gilbert Crawford from a meeting of creditors in 2000, ostensibly on the basis that he was not a creditor at all. He was cross-examined about his motives for having brought charges of theft against the Crawfords, all of which had ultimately been dismissed. Some of these matters were also the subject of what I have earlier described as the "cross-claim" that the Crawfords had themselves belatedly filed. I had previously ordered that by reason of the lateness of its filing, that cross-claim not be heard together with the present action. Ultimately, Mr Coady indicated that the cross-claim was abandoned. 93 In the final analysis, the case put on behalf of the Crawfords, through cross-examination, was that Mr Downey had behaved improperly in a number of respects. It was he who had suggested that the company be put into administration when, on a proper analysis, there were cheaper and better alternatives available. According to the Crawfords, he had responded vindictively towards them when they expressed criticisms of his conduct first as administrator and then as liquidator, rejecting proper claims made in their respective proofs of debt. He had also falsely claimed that they had misappropriated the Standard & Poor's settlement monies when, in truth, they were perfectly entitled to those monies. Finally, he had brought a wholly unjustified claim against Mr Andrew Crawford in relation to the unpaid shares when, upon proper analysis, it was clear that no monies were owing for those shares.

the evidence ON BEHALF OF THE DEFENDANTS 94 Mr Andrew Crawford did not give evidence. In fact, his father was the only witness called on behalf of the defendants. 95 Mr Gilbert Crawford said that his son had founded InvestorSource in 1996. The company was in the business of preparing reviews of financial advice given by others. He said that he personally had little knowledge of that business, but he had nonetheless contributed financially. He said that his only real involvement was assisting in the preparation of the accounts. 96 Mr Crawford said that he became a director of the company in January 1997. He was wrong about that, as the company's records show that he was appointed a director in September of that year. His son was the only other director. He said that he first met Mr Downey in about October 1997, though Mr Downey thought it was several months later. He said that he spoke to Mr Downey about once a month thereafter. He was concerned to ensure that the company was being run lawfully. 97 Mr Crawford said that his initial discussions with Mr Downey were about the difficulty that both he and his son were having in convincing Mr Batrouney to put up his share of the money required to run the company. He said that he also discussed with Mr Downey the negotiations that were taking place with Standard & Poor's. He told Mr Downey that Standard & Poor's had offered US$1.5 million for the business, but by June 1998, had withdrawn that offer. He said that he never, at any time during this period, raised the issue of insolvency with Mr Downey. 98 Mr Crawford said that after Standard & Poor's withdrew its offer, he and his son sought legal advice from Mr Higgins, their solicitor. On 7 July 1998, Mr Higgins wrote to Standard & Poor's on their behalf. His letter noted that he had "been instructed to act for InvestorSource Pty Ltd". It contained a number of allegations of impropriety on the part of Standard & Poor's, and those who had negotiated on its behalf. It claimed that "our client" had suffered significant loss and damage by reason of misleading or deceptive conduct. It threatened legal proceedings against Standard & Poor's unless compensation was offered. A copy of that letter was sent to Mr Downey. 99 Mr Crawford said that once the dispute with Standard & Poor's was settled, Mr Higgins told him that he could not reveal any of its terms. He said that Mr Higgins also told him that the proceeds of the settlement ought to be shared between himself, his son and the company. He explained that this was: "… because Mr Higgins said the company didn't have any money, that if there was actions taken against me, my wife and I were providing the capital to the company, and he said, "Look, if anything happens, you're going to be up for the - if there's a breakdown in the confidentiality clause."" 100 Mr Crawford said that on 3 September 1998, Mr Higgins drew several cheques. One was deposited to the company's account at the ANZ Bank, and constituted the proceeds of the settlement. In response to a question from me as to what he understood that payment to represent, Mr Crawford said that it was his belief that Standard & Poor's had failed to negotiate in good faith, and had acted dishonourably by dealing with a competitor after resiling from the agreement that had been reached. He then said, in answer to my questions: "But the grievance, the wrong that was done, did you not perceive that to be a wrong done to the company rather than to yourself?---We were actually the company, we were the two directors, and I was putting in a lot of money to keep it going, sir, and I sort of believe you should do the right thing at all stages. I thought their behaviour was terrible. I understand your grievance about Standard & Poor's, but did you understand there to be a difference between yourself, in your capacity as an individual, as a shareholder, as a director, and the company itself, its assets? The company's money wasn't your money, was it?---Well, I was putting in the money to keep the company going, your Honour - so whether that sort of clouded my way of thinking, I don't know." 101 Mr Crawford acknowledged that he had withdrawn part of the proceeds paid into the company account on 3 September 1998. He had annotated the cheque butt as follows: "GILBERT Crawford 1/3 settlement from Deed with S+P". 102 He claimed that he had spoken to Mr Downey either on that day, or the following. He said he had told him about the settlement, though he did not disclose the actual amount received. He denied Mr Downey's version of that conversation. In particular, he denied having said that his son had received a sum of money "effectively to shut him up". He also denied that either he or his son had threatened to go to the press, or to complain to ASIC, about Standard & Poor's. 103 Mr Crawford was then asked about the decision to put the company into administration. He said that he was in London at the time that decision was taken. Indeed, he said that he had been overseas for several weeks prior to that date, and that he remained overseas for some weeks thereafter. 104 Mr Crawford's version of the events of 4 August 1999 was as follows: "Whilst you were away, and on 4 August or thereabouts, did you have a telephone discussion with anybody in Melbourne?---I did. It is suggested in these proceedings that there was a resolution between you and Andrew on 4 August at which it was resolved to place the company into administration. I want to ask you was the phone call that you had in connection with that event?---It was. Can you recall where you were at the time?---I was in London at a hotel. To your understanding, where was Andrew?---Andrew was at Jim Downey's office in Melbourne. In this telephone conversation, did you and Andrew participate?---We did. Did anybody else participate?---Mr Downey. On that occasion, can you recall the discussion?---I can, very clearly. Andrew said the money for the sale had come in and he had been in contact with Mr Downey about the way he wanted to distribute it, because it appeared there mightn't be enough to pay all the creditors. Yes, continue with the discussion, please?---Mr Downey then got on the phone and he said, in his professional opinion, the best way of doing it was for Andrew and I to walk away from the distribution of insufficient funds and let him, as a professional person, come over and do it in a very - for us to divorce ourselves from the procedure. Prior to this occasion, had you spoken with Mr Downey in respect to the subject of administration?---Never. No, absolutely never. Prior to this occasion, when was the last time you had considered the financial position of the company?---Well, it would have been before I left Melbourne. When you were on the telephone and in this discussion, was there any discussion about the financial position of the company?---There was, because there was the understanding that there mightn't be enough money to pay all the creditors. HIS HONOUR: Did that come as surprise to you?---Well, your Honour, I was, you know, 10,000 miles away and I relied on Mr Downey and my own son, you know, on this, on their judgment and their professionalism. You told me earlier that so far as you were aware in 1998 the company was doing perfectly well and there was no concern about insolvency or insolvent trading or anything like that?---Never. No, never any trouble with anything like that. Was there any concern on your part of those matters during the first half of 1999?---Not really, no, because I kept on putting the money in, and I could see that eventually somebody was going to - because the idea of what Andrew had done was brilliant, and Australia, with its superannuation, and the way every year it came up by another percentage, with so much money to invest, and nobody knew what managed funds were, and by doing what we were doing, we were providing such a great service. You knew the amount for which Flinders Capital was purchasing the business?---I did, your Honour, yes. But you say that it didn't come as a surprise to you to find yourself being told on 4 August that the assets of the company might not be sufficient even with that payment to meet all the creditors?---Well, only from the point of view that Andrew and I comprised 78 per cent of the creditors. So the obvious thing would have been if there was any shortcoming, that it could have - from Andrew and I." 105 In substance, Mr Crawford's evidence was that he made it perfectly plain that he was relying upon Mr Downey's advice in this matter because he was overseas at the time, and could not participate effectively in the decision. At one point, he acknowledged that he had not fully understood that he had been party to a resolution predicated upon the fact that the company was insolvent, or likely to become so, and did not realise what that meant until after he returned to Melbourne some weeks later. 106 Mr Crawford said that he had prepared his proof of debt in Mr Downey's office, with his assistance. His son had calculated the figure of $54,133.33, without any input from him. Mr Downey had initially raised no difficulties with that claim. Once the proof of debt was rejected, Mr Crawford had arranged for his son to discuss the matter with Mr Downey. Subsequently, he brought proceedings in the Supreme Court challenging Mr Downey's decision. According to Mr Crawford, it was Mr Downey who was largely responsible for the breakdown of the various claims contained in the proof of debt. The only parts of the document that he had filled in were the total amount, and his name at the top. In particular, he denied having borrowed $25,809, or any such sum, from the company, insisting that this was simply his one-third of the settlement figure based on the Standard & Poor's payment. 107 Finally, Mr Crawford denied Mr Downey's account of his behaviour at the creditors' meeting on 28 June 2000, which he was prevented from attending. He claimed that Mr Downey had behaved offensively towards him, slamming the door of the meeting on him, and injuring his chest. He also said that the criminal charges that Mr Downey had laid against both himself and his son had subsequently been withdrawn. 108 In substance, Mr Crawford's evidence was that Mr Downey at no stage told him that it would be advantageous to recommend to the creditors a proposal for compromise in the form of a deed of company arrangement. Had he given such advice, it would have been considered. Mr Crawford's decision to put the company into administration was taken under difficult circumstances, without any realistic access to relevant documents. He acted entirely upon the advice provided by his son, and by Mr Downey. 109 Under cross-examination Mr Crawford acknowledged that he was an experienced businessman, having been involved in retailing for many years. He was asked why he had sought legal advice from Mr Downey, an accountant, rather than from a solicitor. He said that he had never previously been a director of a company, and had little understanding of what running a company entailed. 110 Mr Crawford agreed that it had been his practice to drop in to the offices of the company on a regular basis. He also agreed that he would routinely inspect the bank statements. He said that although the company appeared, at time, to be spending more than it was earning, he was comfortable with that situation. He was happy to inject capital into the business as required. 111 Mr Crawford said that he had little idea of who held shares in the company. He himself was not a shareholder. As far as he was concerned, he was simply a creditor. He regarded the money that he had provided to the company as a loan, secured by the issue of shares to his son. When pressed as to how he could possibly be a "creditor", given that the sums that he had advanced were used to acquire equity, albeit equity in the name of his son, he seemed not to comprehend the point that was being made. Eventually, however, he conceded that the contributions that he had made to the company throughout 1997 were in the nature of capital, and could not properly be regarded as loans. 112 Having extracted this concession from Mr Crawford, Mr Evans then cross-examined him at length upon an affidavit that he had sworn earlier for the purposes of the Supreme Court proceeding involving the challenge to the rejection of his proof of debt. In that affidavit, Mr Crawford claimed that he and his wife were creditors of the company in relation to the various payments made in 1997 and early 1998. It was put to Mr Crawford that this claim was untrue. His response was instructive. He said: "Loans, in my opinion, were capital contributions. That's my definition of how I put it down - loans of capital contributions." 113 Mr Crawford's evident confusion was compounded by further cross-examination. In addition, in answer to a question from me, he said that he never expected any of the amounts that he put into the company to be repaid. Nonetheless, they were still loans. To the extent that his affidavit contained errors, these were the responsibility of his former solicitor who had arranged for it to be drawn and sworn in haste. His former barrister was also to blame. He had been advised that as he was going to be involved in Supreme Court proceedings in any event, he might as well claim for every amount that he had ever spent on behalf of the company. Not content with these attributions of responsibility, he blamed Mr Downey for having characterised the money that he had injected into the company as capital. He conceded that he did not understand the difference between a capital contribution and a loan. He said that he did not know whether any shares had ever been issued to his son as a result of the payments that he had made. 114 Mr Crawford later appeared to shift his position somewhat. He said that the money that he had invested in the company consisted of a series of loans. He said that the shares that were supposedly issued to his son were "a form of security" for these loans. When Mr Evans suggested to him that this answer made no sense at all, Mr Crawford replied that he was not lawyer. 115 Mr Crawford was then cross-examined about various other matters. He acknowledged that he had little understanding of the meaning of "insolvency". He said that in August 1999 he thought that the company was solvent, but that it might become insolvent in the future. He accepted that he may have discussed insolvency with Mr Downey in 1998, and conceded that he may even have spoken about the company going into administration as far back as December 1997. However, he said that if Mr Downey's notes showed that there had been discussions between them about a possible administration in July 1998, those notes were inaccurate. When shown a draft letter addressed to Mr Batrouney dated 2 December 1997 that threatened appointment of an administrator, apparently written under his name, Mr Crawford disavowed any responsibility. Subsequently, he resiled from that position and conceded that he might have had some input into its terms. 116 Finally, Mr Crawford was cross-examined at some length about his denial of having been sent any fax by Mr Downey enclosing a resolution of directors, together with an instrument of appointment as administrator. He was unable to explain how it was that a copy of the instrument of appointment had been faxed back to Mr Downey from the hotel that he had been staying at. For whatever reason, he denied having ever seen the document before. He said that he had no recollection of what was discussed over the telephone on 4 August 1999. However, he agreed that he had not asked for any documents to be faxed to him regarding the company's financial position. All that he could recall was that Mr Downey had said that the company should go into administration because there was trouble with two creditors, and it was best to let an independent person handle the matter. 117 The following passage is illuminating: "HIS HONOUR: Did you believe as at that date during that telephone conversation, that the company was (a) either insolvent or likely to become insolvent? Did you have either of those states of mind?---I didn't have any knowledge at all, your Honour. Did you have a belief?---I didn't have a belief, your Honour, no. Your evidence is that you acted entirely upon the advice ‑ ‑ ‑?---What Mr Downey told me. Of Mr Downey that that was the best thing to do?---I was in London, your Honour, he was in Melbourne. He was right on the spot. I trusted him and that was, you know, the whole idea of having - I'd had a relationship with him since November 97. Did you know what the conditions were or criteria were for the appointment of an administrator?---I had no idea, your Honour. If I had known then and then what he was going to do next with the liquidation, I would never, ever in a million years ever let him do it, your Honour." 118 It should be noted that Mr Crawford is an elderly gentleman. He has been ill, and is obviously infirm.

the plaintiffs' contentions 119 As previously indicated this case has been beset with difficulties from the outset. 120 It is by no means an easy task to identify with precision all of the plaintiffs' claims, or the responses to those claims by each defendant. 121 Nonetheless, what is tolerably clear is that s 436A of what was formerly the Corporations Law, and is now the Corporations Act, lies at the heart of the plaintiffs' case. 122 Section 436A provides that a company may, by writing, appoint an administrator if the board has resolved that, in the opinion of the directors, the company is insolvent, or likely to become so at some future time, and that an administrator should be appointed. 123 The plaintiffs' case is that the Crawfords had no basis for concluding that the company was insolvent, or likely to become so in the future, as at 4 August 1999. That case largely depends upon the correctness of Mr Downey's reconstruction of the company's financial position, as at that date, as reflected in a document that he prepared in or about May 2000. That document, exhibit D13, purported to compare Mr Andrew Crawford's assessment of the company's position, as contained in his report as to affairs, with what Mr Downey described as "the true position". According to Mr Downey, the company was far better off, financially, than Mr Andrew Crawford had claimed. It was not insolvent, and was not likely to become insolvent at any time in the future. Indeed, according to Mr Downey's analysis, it was approximately $120,000 in surplus, and not $90,000 in debt. 124 The plaintiffs acknowledged that it would be wrong to approach this case entirely upon the basis of hindsight. The critical issue was whether it was reasonable for the Crawfords to regard the company as likely to become insolvent when they decided that it should be put into administration. Although they maintained that they had simply acted on Mr Downey's advice, the plaintiffs contended that this was of no avail. Any advice that he had proffered was based entirely upon the information that had been provided to him. The source of that information was the Crawfords themselves. 125 The plaintiffs submitted that the evidence established that Mr Andrew Crawford was liable to the company for $72,500 as unpaid capital for three separate bundles of shares that had been issued to him. However, even if that contention were rejected, the company would still have been in surplus if the amounts that the Crawfords claimed to be owed were overstated. The plaintiffs contended that no director, acting properly, could possibly have formed the view that the company was likely to become insolvent when it was put into administration. 126 In his written submissions, Mr Evans conceded that Mr Downey's reconstruction of the company's affairs contained some inaccuracies. For example, it omitted two priority claims of $2,000 and $1,500 respectively. Adding these two amounts together, and to the $96,824 accepted by Mr Downey as genuinely owing, the actual debt owed to Mr Andrew Crawford was said to be $100,324. 127 Mr Evans also acknowledged that the claims made by Messrs McGlashan and Smith were relevant when considering whether to appoint an administrator. Those claims were disputed and, having regard to Mr McGlashan's prior history, were likely to lead to protracted litigation. However, he submitted that this in no way absolved the directors of their duty to the company. They had no right to put the company into administration unless properly satisfied that it was insolvent, or likely to become so. They could not sensibly have arrived at either conclusion. 128 During the course of his oral submissions, Mr Evans acknowledged that Mr Downey's calculations required a further adjustment. Insofar as the figure of $125,310 was identified as an amount owing to unsecured creditors, the true figure should have been $157,238. That would reduce the surplus by some $32,000. Notwithstanding that concession, and the obvious difficulty in relying upon Mr Downey's reconstruction as a reliable statement of the company's balance sheet position as at 4 August 1999, Mr Evans submitted that on any view there was still no justification for what the Crawfords had done. 129 Mr Evans submitted that Mr Andrew Crawford was far more culpable, in this regard, than his father. He was the managing director and in a better position to assess the company's future prospects. It was he who arranged for his former solicitors, Tress Cocks & Maddox, to advance the claim that he was owed approximately $208,000. He was also responsible for the claim made on behalf of his father relating to the sum of just over $54,000. 130 The plaintiffs submitted that "the fourth payment" involved nothing more than the misappropriation of monies belonging to the company by Mr Andrew Crawford. 131 Their claim in relation to the unpaid shares was put in two ways. It was one of the factors relevant to their allegation that the company was entirely solvent when put into administration. However, it was also the subject of a claim brought directly against Mr Andrew Crawford. 132 There was considerable debate during the course of submissions regarding a foreshadowed reliance by Mr Coady on s 1318 of the Corporations Act. The section was not pleaded as part of any defence. However, it was referred to repeatedly in oral submissions. Mr Evans indicated that the plaintiffs objected to any reliance being placed upon it. He submitted that had the defence been pleaded, the plaintiffs would have adduced evidence to rebut it. When I asked him what evidence he had in mind, he replied that he would need to take instructions. 133 The matter assumed some importance because there had been a sustained and vigorous attack upon Mr Andrew Crawford's character. There was no doubt whatever that he was being accused of general dishonesty. To a lesser extent, the same could be said in relation to his father. 134 After taking instructions, Mr Evans submitted that had the statutory defence been pleaded, he would have sought to tender a number of letters written by Mr Gilbert Crawford in order to bolster the plaintiffs' allegation that his claim to be a creditor of the company had always been known to be false. He said that he had refrained from tendering those letters, or cross-examining upon them, because the allegation of breach of fiduciary duty upon which he relied did not require actual proof of dishonesty. When I asked him to identify with precision the letters, or other evidence that would have been tendered, or cross-examined upon, he said simply that he would have tendered a report made by Mr Gilbert Crawford to the Victorian Police alleging the theft of the Standard & Poor's settlement deed from the company, together with various threats that Mr Crawford had made to former employees regarding that settlement deed. 135 The documents in question were written long after the decision had been taken to put the company into administration. When I suggested to Mr Evans that the production of letters of this kind, written by an angry old man, at a time when passions were running high, and litigation was already on foot, could hardly shed much light on Mr Gilbert Crawford's state of mind in the period leading up to 4 August 1999, he acknowledged that the evidence "might be a bit tenuous". However, he then submitted that had s 1318 been expressly pleaded, there was other evidence regarding Mr Crawford's state of mind that he might have used. He cited various threats that had allegedly been made to members of the Committee of Inspection and indicated other avenues of cross-examination that might have been pursued. With regard to Mr Andrew Crawford, he simply submitted that the evidence pointed overwhelmingly to blatant dishonesty on his part, and insisted that there was no scope whatever for reliance upon the statutory defence. 136 Finally, Mr Evans returned to the issue of the unpaid shares. He relied upon the list of contributories, and the fact that it had been settled in accordance with the requirements of the Corporations Regulations, and was therefore prima facie evidence under s 478(4) of the Corporations Act. 137 In his written submissions, Mr Evans made a number of additional points in relation to the case against Mr Andrew Crawford. He invited me to draw a Jones v Dunkel inference arising out of his unexplained failure to give evidence. He drew attention to reg 5.6.62(2) of the Corporations Regulations, and the effect this, together with s 478(4) of the Corporatoins Act, had upon the settled list of contributories. He noted that there was there was no evidence in the books and records of the company to suggest that Mr Andrew Crawford had ever paid for the first two lots of shares issued. He submitted that the onus rested upon Mr Crawford, if he wished to claim that payment had been made, to prove that fact. As for the third lot of shares, he relied primarily upon the Term Sheet. His claim was also based upon other documents, including a resolution dated 1 August 1998 signed by Mr Crawford, authorising the allotment of 60,000 shares to him. The figure of 95,507 shares purportedly allocated to him in the Term Sheet was 37,500 shares more than were recorded in the shareholder register. Moreover, a notice of general meeting signed by Mr Crawford in June 1999 asserted that there were 223,321 ordinary shares on issue. That was at least 30,000 more shares than were recorded in the share register. There was no evidence to suggest that Mr Crawford had ever paid for any of those shares. 138 Mr Evans submitted that Mr Andrew Crawford had been under a statutory duty to, at all times, act honestly in the exercise of his powers and the discharge of his duties, pursuant to s 232(2) of the Corporations Law (now s 181(1) of the Corporations Act), as well as under a fiduciary duty to act in the best interests of the company. That required not merely honesty of purpose, but "at least a consideration of views or of relevant material in order that he may act in a bona fide way": Blackwell v Moray (1991) 9 ACLC 924 at 936. He had breached both his statutory and fiduciary duty. For example, he had significantly overstated the amount owed to him by the company, and claimed in his proof of debt. He had also misappropriated the US$50,000 paid to the company to settle the dispute with Standard & Poor's. 139 Mr Evans submitted that had Mr Andrew Crawford not misled Mr Downey as to the company's true position, Mr Downey would never have advised that there be a winding-up in insolvency. There would have been no need for any of the protracted and costly steps that were taken. There would simply have been a voluntary liquidation, at minimal cost to the company. 140 Turning to the claims made against Mr Gilbert Crawford, Mr Evans submitted that the evidence established that he had breached his duties to the company by resolving, on 4 August 1999, to appoint an administrator. He submitted that Mr Crawford could not reasonably have been satisfied, on the information available to him, that the company was insolvent, or likely to become so in the future. Had he undertaken the most basic of enquiries, he would have appreciated that the company was well and truly solvent, and likely to remain so. 141 According to Mr Evans, the evidence established that Mr Crawford never turned his mind to the real issue, namely whether the company's liabilities exceeded its assets. He made only the most perfunctory enquiries and, on his own evidence, did not even raise with Mr Downey, at any time prior to 4 August 1999, the question whether an administrator should be appointed. Although Mr Downey disputed Mr Crawford's account of their prior discussions, even on Mr Crawford's own case, he had failed to discharge the most basic of his duties as a director. 142 Mr Evans submitted that Mr Crawford could not rely upon the fact that he had received advice from Mr Downey to place the company into administration. Whatever advice Mr Downey may have proffered was based entirely upon misleading or deceptive information provided to him by the Crawfords. All that Mr Gilbert Crawford knew about the company's financial position was that money from the sale of the business had come in, and that his son had been in touch with Mr Downey about how it should be distributed. Taken at its highest, Mr Gilbert Crawford was simply told that "it appeared there mightn't be enough to pay all the creditors". That was far from being sufficient to justify taking the critical decision to put the company into administration. 143 Mr Evans submitted that even if (and this was not conceded) Mr Crawford at one stage genuinely believed that both he and his son were legitimately entitled to a third of the Standard & Poor's settlement payment, he could no longer have held that belief by August 1999. The evidence showed that he was party to the concealment of the second instalment, and that he subsequently received part of the fourth payment from his son. He could not possibly have believed that his son was entitled to withdraw the sum of "$25,809" left in the company in September 1998, characterising that amount as a "loan" made by his son to the company. Such a claim was directly contradicted by the advice previously given by Mr Higgins. 144 In addition, Mr Crawford knew, or ought to have known, as at 4 August 1999, that the sum of $25,809 should have been deducted from the sum of $54,133 that he claimed as a creditor. Moreover, even a perfunctory examination of the company's records would have confirmed that neither he, nor his wife, was owed money by the company. 145 Mr Evans acknowledged that Mr Gilbert Crawford was entitled to deduct the sum of $20,618.20 from any damages that he might be ordered to pay, that amount being referable to the settlement into which he had entered, being legal fees and expenses incurred by the plaintiffs in relation to his appeal against Mr Downey's rejection of his proof of debt. However, Mr Andrew Crawford was entitled to no such concession.

the Defendants' contentions 146 Mr Coady divided his submissions into two parts. On behalf of Mr Andrew Crawford he submitted that the primary claim, which he described as "the solvency issue", should be rejected. He submitted that in order to succeed on that claim the plaintiffs would have to establish that, as at 4 August 1999, the company was in fact solvent, that Mr Andrew Crawford knew, or ought to have known of that fact, and that he knew, or ought to have known that it would not become insolvent in the future. 147 Mr Coady acknowledged, as is plainly the case, that a director who resolves to put a company into administration must exercise that power in good faith, and in the best interests of the company. He accepted that in forming an opinion under s 436A it is necessary for a director to hold a genuine, bona fide and concluded belief as to the necessary state of insolvency: Kazar v Duus (1998) 88 FCR 218 per Merkel J. He also accepted that if a director opted to exercise the power under that section, in circumstances where there was no objective justification for the decision, a court might readily infer that the power had not been exercised in good faith: Cadwallader v Bajco (2001) 189 ALR 370 at [140]. 148 Mr Coady then turned to the definition of solvency in s 95A(1) of the Corporations Act. That definition is in the classic form. It provides that a person is solvent if, and only if, the person is able to pay all the person's debts as and when they become due and payable. Perhaps unnecessarily, it also provides that a person who is not solvent is insolvent. He noted that the issue of solvency involves a question of fact: Powell & Duncan v Fryer, Tonkin & Perry (2000) 18 ACLC 480 at 482, and Quick v Stoland Pty Ltd (1998) 87 FCR 371 at 382-3. 149 Mr Coady submitted that the evidence showed that the company was no longer trading as at 4 August 1999. It had money in the bank, but no expectation of any further receipts. All but two of its external creditors had been paid, and its debts consisted almost entirely of claims made by shareholders. He submitted that there was a paucity of evidence to establish solvency. Mr Downey appeared not to have carried out any detailed investigations into that issue before proffering the advice that he did that the company should be put into administration. That advice was negligent. Responsibility for that advice should rest with him, and not with Mr Andrew Crawford who simply acted upon it. 150 Mr Coady acknowledged that the law requires a director to exercise "an active discretion". He further acknowledged that a director acts in breach of his or her duty if matters are simply left to slide, or the director blindly follows the directions of another: see Ford's Principles of Corporations Law at [8.108]. However, he submitted that a director who seeks the opinion of a qualified professional, and acts upon that opinion, cannot be said to have acted in breach of duty. 151 Mr Coady submitted that all of Mr Downey's attempts to show that the company was in fact solvent as at the relevant date were misconceived. The enquiries that he had carried out were perfunctory at best. He had not attempted to evaluate the claims made by Messrs McGlashan or Smith. Importantly, he was himself in a position of conflict of interest as he stood to gain financially from the advice that he proffered. He had also acted as a personal adviser to the Crawfords during the preceding two years, and was not therefore properly in a position to provide advice to the company. 152 Mr Coady noted that it took Mr Downey a long time to conclude that the company had been solvent when put into administration. He came to that conclusion at a time when relations between himself and the Crawfords had entirely broken down, and litigation on both sides was contemplated. His reconstruction of the company's financial position was replete with errors. It rested upon a number of unsatisfactory and subjective assumptions. In essence, Mr Coady submitted that Mr Downey had taken the easy way out by advising the Crawfords to appoint him as administrator in order to resolve ongoing disputes with external creditors without satisfying himself, on proper grounds, that the preconditions for that appointment were met. His advice was incomplete, and given precipitously. It may have been well meaning, and pragmatic, but it ignored the fact that alternative methods of winding-up were available at far less cost to the company. 153 Mr Coady next submitted that even if, contrary to his primary submission, the Court were to find against Mr Andrew Crawford on the solvency issue, there was no causal link between the decision to put the company into administration and the damages claimed. If any loss was sustained as a result of that decision, it could only be so much of the cost of the appointment, up to the time of the resolution to liquidate, as exceeded the cost of appointment of a liquidator appointed to undertake a voluntary winding-up. That was far less than what the plaintiffs claimed. 154 Finally, in relation to the solvency issue, Mr Coady sought to invoke s 1318 of the Corporations Act. 155 Turning to the specific allegations of breach of duty made against Mr Andrew Crawford, Mr Coady submitted that his client had at all times acted honestly. The withdrawal of monies from the BT Fund Management Account had been done in the belief that this was lawful. Nonetheless, and for reasons that were never clearly articulated, Mr Coady acknowledged, at least in his final written submissions, that the sum in question was the company's money, and that the plaintiffs were entitled to its recovery, together with interest. However, he submitted that although Mr Andrew Crawford now accepted that this was so, the amount taken had been subsumed in the reduction of his claim to $125,000 from just over $200,000 when the deed of company arrangement was executed. Accordingly, the company suffered no loss from his action. 156 Mr Coady submitted that the plaintiffs' claim that Mr Andrew Crawford was liable under s 598 of the Corporations Act for having provided a false report as to affairs was not particularised, had not been opened by Mr Evans, and was in any event subsumed under a broader claim of breach of duty. 157 Mr Coady further submitted that the salary claims made by Mr Andrew Crawford were legitimate. Alternatively, it had not been shown that he did not genuinely believe that he was entitled to those amounts. Contrary to Mr Evans' submission, the fact that Mr Crawford ultimately agreed to reduce his claim from just over $200,000 to $125,000 (an amount ultimately accepted under the deed of company arrangement) did not amount to an admission that he never genuinely believed that the larger sum was owing. The same was true in relation to Mr Gilbert Crawford's claim as set out in his proof of debt. From his son's point of view, there was nothing to suggest that he did not believe that his father was owed the amount claimed. 158 Finally, Mr Coady submitted that the plaintiffs' claim against Mr Andrew Crawford in relation to the unpaid shares should be rejected. He submitted that Mr Evans had all but abandoned any reliance upon the Term Sheet, or the settlement of the list of contributories for the prima facie effect provided for in the Regulations. In any event, the plaintiffs had not proved that Mr Andrew Crawford did not believe that no money was owing to the company in relation to unpaid shares. 159 In substance, Mr Coady's submission regarding the unpaid shares was set out in his written submissions, and may be briefly summarised. He contended that: · the plaintiffs had withdrawn reliance on the settling of lists of contributories and the prima facie status of proof afforded by the relevant provisions. · as a consequence, they bore the onus of proving the issue of all shares and non-payment for them. · there was no evidence to support the contention that 37,500 shares were actually issued on or about 2 July 1999. The Term Sheet did not prove that fact. · the shares issued prior to March 1998 were all recorded in the company's books as fully paid. Mr Downey himself reported to ASIC that the shares were all fully paid, and only later, after commencing this proceeding, contended that this had been an oversight by an employee. That employee was not called to give evidence. · in addition, Mr Downey conceded that had he obtained and examined all of the books of the company, constituted by MYOB accounting records, he may well have reconciled cheques with payments towards share purchases by Mr Andrew Crawford. 160 Mr Coady's contentions on behalf of Mr Gilbert Crawford largely mirrored those advanced on behalf of his son. In addition, he relied upon Mr Gilbert Crawford's position as a non-executive director of the company, his lack of detailed knowledge of the company's affairs, the fact that he was in England on the date that the resolution to put the company into administration was carried, and his client's general honesty in answer to the claims made against him.

the relevant legal principles 161 Prior to 1993, the relevant companies legislation made provision for four separate methods for dealing with insolvent companies. These were schemes of arrangement, official management, voluntary winding up, and winding up by the Court. Each of these procedures had its own particular advantages and disadvantages. For example, schemes of arrangement were often considered to be both cumbersome and costly. 162 The introduction of Pt 5.3A into the Corporations Law in June 1993 created a new procedure. A company that was, or might be, insolvent could henceforth be subjected to control by an administrator for a strictly limited period during which the affairs of the company could be closely monitored. That enabled consideration to be given to which of three courses should be adopted, namely, the execution of a deed of company arrangement, winding up, or simply a cessation of the administration without either of the foregoing. The idea was that at the end of the period of administration, the creditors themselves would decide which of these three courses should be followed. In the meantime, there would be a moratorium on actions or proceedings against the company. See generally Brash Holdings Ltd v Katile Pty Ltd [1996] 1 VR 24 at 28-29. 163 The objects underlying Pt 5.3A were set out in s 435A. They were to provide for the business, property and affairs of an insolvent company to be administered in a way that maximised the chances of the company, or as much as possible of its business, continuing in existence and, if that were not possible, resulted in a better return for the creditors and members than would result from an immediate winding up. 164 The pivotal provision, so far as the present case is concerned, is s 436A(1) of what was, prior to 15 July 2001, the Corporations Law. That section relevantly provided (and still provides under the same section of the Corporations Act)that a company may appoint an administrator if the board has resolved to the effect that: "(a) in the opinion of the directors voting for the resolution, the company is insolvent, or is likely to become insolvent at some future time; and (b) an administrator of the company should be appointed." It is clear from the language of the section that the two conditions specified must both be met. 165 In Wagner v International Health Promotions (1994) 15 ACSR 419, Santow J dealt with the construction of this section. The case involved a meeting of directors that had been held by telephone. At that meeting, a resolution was passed to appoint a particular individual as administrator. The resolution did not deal with the insolvency of the company, as required by s 436A(1)(a), although there was some discussion regarding that issue during the meeting. The question was whether the purported appointment of the administrator was valid. His Honour declined to grant an order declaring the resolution valid. He accepted that it was not necessary that a resolution be expressed by a minute. However, that did not advance matters if, in fact, there was no resolution by the Board, and not merely the failure to minute the resolution. 166 In Russell v Westpac Banking Corporation (1994) 61 SASR 583 the Full Court of the Supreme Court of South Australia held that there may be a cause of action of "wrongful unofficial administration" available against both an administrator and the creditor who appointed the administrator. In other words, a cause of action for unlawful and negligent acts which wasted the company's assets is available to the company or its liquidator, or a shareholder or creditor. Moreover, any of these persons may sue in the company's name if the liquidator refuses to commence the action: Worthley v Australian Securities Commission (1994) 13 ACSR 532 at 539. 167 The primary claim advanced on behalf of the plaintiffs is one for general damages, or compensation under s 598 of the Corporations Act. Curiously, that section in its present form commences with subsection (2). It provides that where the Court is satisfied that a person is guilty of fraud, negligence, default, breach of trust, or breach of duty in relation to a corporation, and the corporation has suffered or is likely to suffer loss or damage as a result of that conduct, the Court may make such order or orders as it thinks appropriate against or in relation to the person. Section 598(4) provides that the orders that may be made under subsection (2) include an order directing the person to pay money or transfer property to the corporation and an order directing the person to pay to the corporation the amount of the loss or damage. 168 It appears that s 598 was originally known as "the liquidator's misfeasance summons". In order for the liquidator to succeed, misfeasance, or breach of trust, had to be proved. It is now clear that negligence is sufficient. Nonetheless, it is suggested that the remedy is only available during the winding up, or at least before dissolution. Interestingly, having regard to the complexity of some of the matters raised in this case, the author of Robson's Annotated Corporations Law, 3rd ed, vol 1, 1998, comments at p 736 that the section is intended to provide "only a summary remedy for simple cases". See generally Ring v Sutton (1980) 5 ACLR 546. Where several directors commit the same breach, their liability is joint and several. 169 The plaintiffs, in their pleading, also purport to rely upon s 132(4) of the Corporations Act. That section concerns the availability of injunctive relief. Although pleaded, it has assumed no real significance in this proceeding, and I need say nothing further about it. 170 The present case is unusual in a number of respects. Normally, when a breach of duty is alleged against a director in the context of insolvency, it is on the basis that he or she permitted the company to trade whilst insolvent. Such conduct was proscribed by s 588G of the Corporations Law, and is also proscribed by the same section under the Corporations Act. See generally Elliott v Australian Securities and Investments Commission (2004) 205 ALR 594. There is no question of insolvent trading in this case. By the time Mr Downey was appointed administrator, the company had long since ceased trading. It was nothing but a cashbox. The directors are said to have been at fault, not because they permitted the company to trade while insolvent, but rather because they permitted a solvent company to be put into administration under a series of provisions designed to deal only with insolvent companies. This was said to have resulted in substantial loss and damage to the company. 171 It is trite to observe that directors are under a wide range of duties. Those duties take on a special significance when a company is, or may be, insolvent. When a company is solvent, directors' duties are owed to the company, and not to individual shareholders or groups of shareholders. For these purposes, the shareholders as a general body may be regarded as "the company". However, when a company is insolvent, directors must have regard to the interests of creditors as well. 172 The power to control the management of a company is generally vested by the company's constitution in its board of directors. With that power comes the opportunity for fraud and mismanagement. Ford's Principles of Corporations Law notes at [8.010] that shareholders of companies are often especially vulnerable because they are frequently passive investors. The law responds to their vulnerability by subjecting directors to strict fiduciary and statutory duties. 173 In the context of insolvency, it has been suggested that directors owe four separate sets of duties. These are contractual, common law, equitable and statutory. 174 At common law, directors owe a duty of care, skill and diligence that stems from the law of negligence and the relationship that exists between the director and the company: Daniels v AWA Ltd (1995) 37 NSWLR 438 ("Daniels"). Although directors are not expected to bring any particular qualifications to their office, they should at least have a minimal understanding of financial affairs: Commonwealth Bank of Australia v Friedrich (1991) 9 ACLC 946 ("Friedrich") per Tadgell J. Though not bound to give continuous attention to the affairs of the company, they are expected to put themselves in a position to guide and monitor its management: In re City Equitable Fire Insurance Co. [1925] Ch 407 per Romer J. 175 This common law duty was incorporated into the Corporations Law by the introduction of Ch 2D in 1999, and is now contained in s 180(1) of the Corporations Act. It is subject to what is described as the "business judgment rule" in s 180(2), such that a judgment taken in good faith for a proper purpose and rationally thought to be in the best interests of the company is deemed to satisfy the requirements of subs (1). According to Ford's Principles of Corporations Law at [8.060] there is also a broader common law business judgment rule. See generally Harlowe's Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL (1968) 121 CLR 483 at 493. 176 Equitable duties arise because of the fiduciary relationship between directors and their companies. See generally Ford's Principles of Corporations Law at [8.010]. These duties include a duty to act in good faith in the best interests of the company as a whole, a duty to exercise powers for their proper purpose, a duty to avoid fettering discretions, and a duty to avoid conflicts of interest. The duty most clearly relevant to the issues raised in the present case is the duty to exercise powers for their proper purpose. A director can breach such a duty if the law objectively considers that what he or she is doing is improper, even if it is subjectively thought to be in the best interests of the company. The personal views of the director as to whether or not the actions are for a proper purpose are not relevant: Australian Growth Resources Corp Pty Ltd v Van Reesema (1988) 6 ACLC 529 per King CJ. Cf Marchesi v Barnes [1970] VR 434 per Gowans J. 177 Finally, there are a number of statutory duties that encapsulate fiduciary duties, though there are often significant differences between them. For example, as previously noted, directors are under a positive duty to ensure that a company does not incur a debt whilst insolvent, a duty now imposed by s 588G of the Corporations Act.

the issues to be resolved 178 It is not altogether easy to identify the various causes of action pleaded by the plaintiffs. The primary claims, brought against both defendants, allege breaches of statutory and fiduciary duty. Paragraph 35 of the statement of claim sets out the duties allegedly owed in fairly classical terms, though it does not identify the statutory provisions said to give rise to some of them. The breaches alleged include the making of the resolution to put the company into administration. There are separate breaches alleged against Mr Andrew Crawford. These include the making of the false entry, the request, the receipt of the fourth payment, signing and submitting the report, and submitting the first proof of debt. There is also a separate breach alleged against Mr Gilbert Crawford arising out of what are said to be a series of false claims contained in his proof of debt, although the precise status of that alleged breach is somewhat uncertain. 179 Paragraph 22 of the statement of claim alleges that Mr Andrew Crawford is liable to pay to the company the amount of $22,213.64 paid out of the BT Funds Management Account as "monies had and received". That appears to be a claim based upon a breach of fiduciary duty. Paragraph 22A makes an alternative claim in relation to that sum, alleging that the payment was void pursuant to s 437D of the Corporations Law. That section provided that no one other than an administrator could deal with the company's property once it was under administration, and rendered void any transaction or dealing carried out without the administrator's consent. 180 Finally, there is a straightforward claim for debt against Mr Andrew Crawford in relation to what is said to be the sum of $72,500 owing with respect to the unpaid shares. 181 It is perhaps of some significance that no claim is made, in terms, of a breach of the common law duty to exercise care and diligence. Nor is there any direct reliance upon the statutory analogue of that duty, s 180(1). Nonetheless, the plaintiffs do plead that the power to appoint an administrator was not exercised for a proper purpose, objectively considered. They rely heavily upon an alleged lack of reasonable care on the part of both defendants in supporting that allegation. 182 The defendants, for their part, rely upon what they claim to have been the advice given by Mr Downey when exercising the power under s 436A. They say that they genuinely believed that the company was insolvent, or likely to become so in the future, and that they were therefore justified in placing it into administration. Mr Andrew Crawford seems initially to have claimed that he was entitled to the fourth payment, based upon the advice provided by Mr Higgins. However, in his final written submissions, his position had shifted. He now seems to acknowledge that the company was entitled, at all material times, to the money held in the BT Funds Management Account, and that he had no right to appropriate it to his own use. His latest position appears to be that even if that be the case, the company has already been compensated for what he did by virtue of the fact that he reduced his claim against it when he participated in the deed of company arrangement that was finally entered into in November 1999. 183 As regards the unpaid shares, Mr Andrew Crawford's position is quite simple. He claims that the plaintiffs have failed to prove that he did not pay for the first two lots of shares that were issued to him. He further claims that the third lot of shares was never issued.

conclusions 184 One of the principal questions to be resolved is whether the company was insolvent, or likely to become so, as at the date upon which it was put into administration. It has been suggested that the definition of insolvency now contained in s 95A of the Corporations Act contemplates that a cash flow test is intended to be applied, rather than a simple balance of assets over liabilities: Leslie v Howship Holdings Pty Ltd (1997) 15 ACLC 459 per Sackville J. However, a company may experience both types of insolvency and, as was noted by Prior J in Powell & Duncan v Fryer, Tonkin & Perry (2000) 18 ACLC 480 at 482: "The commercial solvency of a company is not proved by merely looking at its accounts and making a mechanical comparison of its assets and liabilities. Insolvency is a question of fact falling to be decided as a matter of commercial reality in the light of all the circumstances with things being viewed as it would be by someone operating in a practical business environment. The statutory focus is on solvency, not liquidity. Thus it is appropriate to consider the terms of credit or financial support available to the company with which to defray any debts owed to creditors. The question is not to be answered merely by looking at the financial statements" 185 It is often difficult to determine whether a company that has collapsed was relevantly insolvent at some earlier date. That company's financial records might be incomplete, if not in disarray. In some cases, regulators are confronted with enormous problems in trying to work out whether insolvent trading has taken place. In order to overcome this difficulty, the Corporations Act contains two rebuttable presumptions regarding insolvency. The first is to be found in s 588E(3). Where it is proved that a company that is being wound-up was insolvent at a particular time during the twelve months prior to the "relation-back day" (generally the date that an application to wind the company up was filed, or an administrator appointed), it is presumed that the company was insolvent from that time until the relation-back day. The second is to be found in s 588E(4). Under that provision, if it is proved that a company has failed to keep financial records for the period specified, normally seven years, it is presumed to have been insolvent throughout that period. This is subject to an exception in relation to contraventions that are only "minor or technical". 186 One approach, when determining whether a company is insolvent, is to consider whether its assets exceed its liabilities. Another involves analysis of its cash flows. All cash resources available to a company, including credit resources, are to be taken into account. In appropriate cases, promises of financial support may also be relevant. 187 In the present case, the company had ceased trading by the time the decision to put it into administration was taken. It was a relatively simple task to ascertain the sum total of its assets insofar as they consisted of cash at bank. It was not nearly so simple to ascertain whether there were monies outstanding in relation to unpaid shares. The company's records were incomplete. Mr Andrew Crawford's style of management was, to put it charitably, somewhat informal. It was difficult to work out whether Messrs McGlashan and Smith had valid claims against the company and, if so, what the value of those claims might be. It was also difficult to determine how to deal with an apparent disconformity between Mr Andrew Crawford's contractual entitlements, and the resolutions of the directors regarding what payments should be made to him. 188 In some cases, the issue whether a company was insolvent at a particular date can be resolved without determining the minutiae of its balance sheet. It will be manifestly clear that the company could not have paid its debts as and when they fell due. That is not true of the present case. If the company was solvent as at 4 August 1999, it could only have been marginally so. Much depended upon how several contentious claims were regarded, both as to their substance, and as to their treatment in the accounts. That makes it all the more difficult for the plaintiffs to establish that the defendants were in breach of their statutory and fiduciary duties by resolving to put the company into administration. 189 However, the question whether the company was insolvent as at 4 August 1999 in one sense presents a red herring. The real issue is whether the defendants, or either of them, acted in breach of duty when they proceeded to put the company into administration. The answer to that question depends largely upon whether they genuinely believed, on reasonable grounds, that the company was insolvent or likely to become so in the future, and not upon whether that was the company's actual position. The reasonableness of any such belief in turn depends, at least in part, upon the adequacy of the steps that they took to satisfy themselves that the preconditions for the appointment of an administrator had been met. 190 In an analogous context, ss 588G(2) and (3) of the Corporations Act impose a duty on directors to prevent insolvent trading. A key element in establishing a breach of this duty is to prove that there were reasonable grounds for suspecting that the company was insolvent, or would become so, by incurring the debt. It is a defence if it is proved that at the time the debt was incurred, the directors had reasonable grounds to expect, and did expect, that the company was solvent and would remain so: s 588H(2). Reasonable grounds are assessed by the objective standard of "a director of ordinary competence": Metropolitan Fire Systems Pty Ltd v Miller (1997) 23 ACSR 699 at 703. The standard of care expected of a director of ordinary competence will vary according to the size and nature of each particular company, as well as the particular experience that the director held himself or herself out as having upon appointment to that office. 191 Although decided under a precursor to s 588H(2), Friedrich provides a useful illustration of the standards expected of directors in this context. In that case, the Chief Executive Officer of the Victorian Branch of the National Safety Council fraudulently obtained over $97 million from the State Bank of Victoria. The Honorary Chairman of the Branch, a Mr Max Eise, sought to rely upon the "reasonable cause to expect" defence in what was then s 556(2)(b) of the Companies (Victoria) Code. He argued that by reason of the fraud committed by Mr Friedrich, he had such cause to expect that the company was and would remain solvent. Tadgell J rejected this contention. His Honour pointed to what Mr Eise would have known had he properly fulfilled his duties and responsibilities as a director and chairman. In the absence of basic enquiries regarding the company's accounts, and a failure to read the auditor's reports, he could not claim that he had any such expectation. 192 Similarly, in Morley v Statewide Tobacco Services [1993] 1 VR 423 Ormiston J said at 448: "What each director is expected to do is to take a diligent and intelligent interest in the information either available to him or which he might with fairness demand from the executive or other employees and agent of the company. However, at the least, a director cannot now assert from a state of total ignorance that he or she had no reasonable cause to expect that a company could not pay its debts as they fell due, within the meaning of para. (b). A director may claim, exceptionally, that he took reasonable steps with the other directors to appoint suitable and appropriate accountants and other executives and that they failed to provide information when asked. If the failure to provide information be short in duration, the director may be able to show that he acted reasonably, but he cannot rest on that ignorance. Moreover, to fail to make any enquiries whatsoever is not excusable and an opinion on the company's solvency based on that ignorance could not be characterised as reasonable. Even in a small company a director should ask for and receive figures, albeit of a basic kind, on a more or less regular basis. If that is sought and it reveals no difficulties and the director has no other reason to suspect the company may not be able to pay its debts as they fall due, then the director may be shown to have acted reasonably. Directors cannot be required to make their own further investigations or to quote "audit" the accounts provided, unless they have particular responsibilities or expertise, and they can only be required to seek more information if the company's accounts, together with any other information from the company's executives, put them on enquiry." 193 The Full Court of the Supreme Court of Victoria (Crockett, Southwell and Hedigan JJ) subsequently dismissed an appeal against his Honour's judgment: [1993] 1 VR 423 at 451. 194 It should be noted that s 588H(4) provides that a director may be shielded from liability if at the time the debt was incurred, because of illness or for some other good reason, he or she did not take part at that time in the management of the company. 195 It is necessary to consider the operation of s 1318 of the Corporations Act. That section allows a court to relieve certain persons from liability in civil proceedings for negligence, default, breach of duty or breach of trust, if the person establishes that he or she acted honestly, and ought fairly to be excused for the relevant conduct, having regard to all of the circumstances of the case. There is no express requirement in s 1318 that the person must have acted "reasonably" in order to be excused. However, the degree of care and diligence that the person exercised will be relevant in determining whether he or she ought fairly to be excused in the circumstances. Courts have been reluctant to exercise their discretion under the section where a person has breached their duty of care and diligence: see generally Daniels, and Ford's Principles of Corporations Law at [8.420]. 196 This takes me to my findings in relation to the primary claim. That claim depends upon my being satisfied that the Crawfords, or either of them, acted in breach of their duties to the company when they resolved, on 4 August 1999, to place it into administration. As previously indicated, the question is not whether, as at that date, the company was actually insolvent, or likely to become so at some future time. It is rather whether the directors genuinely believed that this was so, and whether that belief was reasonable in the circumstances. That in turn will depend largely upon whether they took adequate steps to satisfy themselves that the statutory requirements were met before resolving to appoint Mr Downey as administrator. 197 The onus rests upon the plaintiffs to satisfy the Court that the directors acted in breach of their statutory or fiduciary duties. I am not persuaded that they have discharged this onus. 198 Dealing firstly with Mr Andrew Crawford, the plaintiffs' case against him rests largely upon the allegation that he overstated the amount owing to him as a creditor of the company, and omitted to include in the company's assets the amount owed by him in relation to what are said to be the unpaid shares. 199 It goes without saying that the critical issue is not what Mr Downey pieced together as a reconstruction of the company's balance sheet position some time in 2000, but what a reasonable director, with Mr Andrew Crawford's knowledge of the company's financial position as at 4 August 1999, would have thought. 200 It is important to understand that there is a significant discrepancy between the terms of Mr Andrew Crawford's contract of employment with the company, executed on 1 April 1998, and what the directors resolved about his remuneration on the same date. The contract of employment provided that Mr Andrew Crawford, as managing director, would be paid $4,500 per month from 1 June 1996 to 31 January 1997, $6,000 per month from 1 February 1997 to 31 January 1998, $6,500 per month from 1 February 1998 to 31 January 1999, and $8,000 per month from 1 February 1999 to 31 January 2000. The terms of the resolution authorising the payment of remuneration encompassed the same monthly amounts, but omitted any mention of any payment between 1 January 1997 and 1 February 1997, 1 January 1998 and 1 February 1998, and 1 January 1999 and 1 February 1999. 201 I can think of no sensible reason why Mr Andrew Crawford, or for that matter his father, would deliberately have resolved to pay himself less than what he was contractually entitled to receive. This is particularly so when the contract was signed on the same day as the resolution was passed. One possibility is that the resolution was simply drafted incorrectly. That is consistent with the manner in which this company appears to have been run. In any event, it seems to me to make no difference whether the resolution was correct or not. If Mr Andrew Crawford was entitled to be paid on a twelve-month basis, in accordance with what is at least implicit in the terms of his contract, it can hardly be said that he was not entitled to claim for the amounts owing when he prepared his proof of debt. 202 The same can be said of Mr Downey's rejection of that part of Mr Andrew Crawford's proof of debt that did not carry with it specific resolutions by the company authorising payment. The critical question is whether, as Mr Crawford's former solicitors, Tress Cocks & Maddox, asserted in a letter sent to the company on 23 July 1999, he was owed $38,854.40 for the period 1 June 1996 to 30 June 1997, $61,133 for the period 4 July 1997 to 4 July 1998, and $82,625.00 for the period 4 July 1998 to 30 June 1999. His contract at least implicitly provided for such payments to be made. It was never suggested that he had not performed the services required of him. Although I can well understand why Mr Downey would have subjected these claims to scrutiny, I am far from persuaded that they were not made in good faith, or indeed on reasonable grounds. 203 The question of the unpaid shares is also problematic. Mr Andrew Crawford claims, in his defence, that the first two tranches were paid for, and that the documents that would have reflected that fact have simply not been located or produced. The company's records appear to be incomplete, particularly those going back to its early days. On one view, it might be thought that the onus rests upon the plaintiffs to prove that no payments were made for these two tranches. However, the better view seems to be that in a case involving a loan, where the only issue is whether there has been repayment, the onus rests upon the defendant to prove that the debt was repaid. See Young v Queensland Trustees Ltd (1956) 99 CLR 560 at 562 and 569-70. 204 For present purposes, the onus of proof on this issue makes no difference. The amount said to be owing in relation to these two tranches of shares (approximately $35,000) was relatively insignificant in the context of this case. It would not have made the difference between the company being solvent as at the date it was placed into administration, and its being insolvent. 205 The so-called Term Sheet, upon which much of the claim in relation to unpaid shares rests, is in my view too tenuous an item of evidence upon which to base the claim that there is still $37,500 owing. It is perfectly clear that Mr Andrew Crawford was not the author of the document. In fact, it was drafted by Flinders. It was only ever a draft document, and never actually used as the basis for the purchase of the business. It is possible that Mr Andrew Crawford was attempting to gain a benefit to which he was not entitled by falsely representing that he owned a greater number of shares in the company than he did. This would enable him to receive a higher proportion of the total sum paid for the business. If that were the case, one could readily conclude that he was utterly dishonest. However, it would not, of itself, establish that he owned 95,507 ordinary shares in the company as recital C claimed. Though he signed the document, and might thereby be taken to have admitted the contents of that recital, there is a plausible explanation for what he did that does not involve any such admission. The fact that any such explanation reflects badly upon Mr Crawford is not to the point. 206 In addition, none of the surrounding documents upon which the plaintiffs rely to prove that these shares were issued is sufficiently cogent to establish that fact. I include, in particular, the documents tendered an Exhibit P8. It is not necessary in that regard to resolve an apparent dispute between the parties as to whether Mr Evans, at one point in his submissions, conceded that he could not rely upon the prima facie effect of the settled list of contributories as the basis for the conclusion that the shares in question had issued. 207 If the primary claim against Mr Andrew Crawford fails because the state of the company's assets and liabilities as at 4 August 1999 was uncertain, the same must be true of the claim against Mr Gilbert Crawford. Although he acknowledged some involvement in the financial side of the company's affairs, and accepted that he regularly inspected its banking records, the reality was that he knew far less about the company's day to day operations, and its financial position, than did his son. Indeed, my assessment of Mr Gilbert Crawford is that he had little understanding of the company's business, or its financial affairs. He was content to allow his son, as managing director, to run the company. He simply provided money from time to time when it was needed, without really appreciating the nature of those payments. He had no idea of the difference between injecting capital into a company in return for equity (whether for himself or his son) and making a loan to that company, thereby becoming a creditor. 208 In addition, I take into account the fact that Mr Gilbert Crawford was overseas throughout the period leading up to the decision to place the company into administration. He was in London on the day that the resolution was passed. He did not have access to any financial records regarding the company's current balance sheet position. It is obvious that he acted largely upon the advice proffered by his son, as apparently confirmed by Mr Downey. 209 Although the manner in which he addressed the issue of whether the company should be put into administration left a good deal to be desired, I cannot conclude that he acted unreasonably in accepting at face value his son's claim that the company owed him more than $200,000. He was in no real position to evaluate that claim. He certainly had no reason to disbelieve his son. When one adds the threat of a costly commercial dispute with Mr McGlashan, I can understand how Mr Crawford might have concluded that the company, if not actually insolvent, was likely to become so in the future. 210 I accept that, with the benefit of hindsight, Mr Crawford could have requested that updated financial statements be faxed to him at his London hotel before he committed himself to the irrevocable step of putting the company into administration. I must say, however, that I doubt whether those documents would have made the slightest difference, given how little he understood about the company's position, or financial matters generally. 211 The standard of care required of a director of a small private company who is not an executive director can hardly be the same as that expected of an executive director of a large public company. That is not to say that Mr Gilbert Crawford can take refuge in what Ormiston J in Morley described as "a state of total ignorance". There is obviously a minimum standard that all directors must meet. Whether Mr Crawford met that minimum standard across all aspects of the performance of his duties is doubtful. However, whatever criticisms can legitimately be levelled at him, I am not persuaded that his decision to act upon his son's advice that the company be put into administration gave rise to a breach of statutory or fiduciary duty. 212 As previously indicated, Mr Gilbert Crawford did not specifically plead s 1318 in his defence. Nonetheless, he has sought leave to amend his pleading in order to rely upon the statutory power to excuse breach. I note that he was unrepresented when his pleading was finalised. Mr Coady only came into the matter at the very last moment. 213 In a case where the plaintiffs, though represented throughout by experienced solicitors and counsel, have not themselves referred in terms to a number of the statutory causes of action pleaded, it seems to me somewhat inappropriate for them to complain about Mr Gilbert Crawford's failure to refer to s 1318, in terms. His defence, when read fairly, makes it plain that he seeks to meet the case against him by relying upon the fact that he acted on the advice of others. He says, in substance, that he acted honestly and in good faith at all times. That claim was fully and vigorously challenged by Mr Evans. Mr Crawford was extensively cross-examined, both as that issue, and as to credit. There was nothing to prevent Mr Evans from relying upon any other material that he might have had in his possession to pursue that attack. 214 Order 10 of the Federal Court Rules sets out as a matter for specific pleading any fact that a party alleges constitutes a defence to the other side's claim. I accept that, as a general rule, all matters of justification or excuse must be pleaded: Johnstone v Pedlar [1921] 2 AC 262. It does not follow that a defendant will be prevented from relying upon s 1318 as a defence unless that section is pleaded in terms. It may be sufficient that the facts alleged in the defence make it clear that the section is, in effect, being invoked. That seems to me to be the position in the present case. 215 In addition, s 1318 was the subject of submissions throughout the trial. Mr Coady referred to it at length in his closing arguments. Had Mr Evans really wanted to put further matters to Mr Gilbert Crawford in light of those submissions, he could have sought leave to do so. Such leave would almost certainly have been granted. 216 I do not think that the plaintiffs would be in any way prejudiced if leave were granted to Mr Gilbert Crawford to amend his defence. Accordingly, if it were necessary to do so, I would grant such leave. I would also find that the defence had been established in his case. 217 Mr Andrew Crawford's position is quite different. He did not give evidence. Moreover, the plaintiffs' case against him was much stronger than their case against his father. There are also aspects of his conduct that are troubling, and would not incline the Court to grant leave to amend his defence. In addition, it would be futile to grant such leave. Without evidence on his part, the defence under s 1318 could never have been affirmatively established. 218 Insofar as the plaintiffs make any claim against Mr Gilbert Crawford arising out of his allegedly false proof of debt, that claim fails. I note that the proof of debt was based on instructions given by Mr Gilbert Crawford to Tress Cocks & Maddox that he had made "a number of advances" to the company by way of "loan". Most of these (totalling $48,980) were said to have been made from 15 July 1998 to 2 September 1998. Mr Downey identified a series of eight payments totalling $23,980 as having been deposited into the company's account during that period. He noted that these were exactly $25,000 less than the amount claimed, and asked for clarification. He also noted that the sum of $25,809.30, marked "GC Loan" had been paid out and asked why that had not been deducted from the claim. He rejected the proof of debt on 10 May 2000. 219 There is sufficient uncertainty associated with these various payments, and the sum withdrawn, to justify Mr Downey's rejection of the proof of debt. It does not follow that Mr Gilbert Crawford made these claims knowing them to be false, or reckless as to their truth. I am not persuaded that the fact that the proof of debt contained these claims gives rise to any separate cause of action against him, still less that it supports the primary claim arising out of the decision to put the company into administration. 220 Insofar as the plaintiffs make a separate claim against Mr Andrew Crawford arising out of what they describe as "the unpaid shares", that claim fails for the reasons set out earlier in these reasons for judgment. 221 However, the position is different with regard to the claim arising out of "the fourth payment". Mr Andrew Crawford had no right to withdraw the sum of $22,613.64 from the BT Funds Management Account on 27 August 1999. On that date, the company was either still under administration, or in liquidation. He had no authority to do what he did, and most certainly did not have Mr Downey's approval. The money in question was part of the proceeds of the settlement of the dispute with Standard & Poor's. That money at all times belonged to the company, and not to its directors or either of them. 222 I reject Mr Coady's submission that although the company may have been entitled to recover this sum, it should be regarded as having already done so by reason of Mr Andrew Crawford's agreement to reduce his claim against it from more than $200,000 to $125,000. 223 Accordingly, there will be judgment for the plaintiffs against Mr Andrew Crawford, in the sum of $22,613.64. Interest on that sum will be ordered, to be calculated in accordance with the usual practice of this Court. In default of agreement upon the amount of interest to be paid, a Registrar can determine the matter. 224 With regard to the claim brought against Mr Gilbert Crawford, there will be judgment for the second defendant. 225 I propose to hear the parties as to the form of any orders that should be made, and also as to the costs of this proceeding. I certify that the preceding two hundred and twenty-five (225) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Weinberg.

Associate: Dated: 30 September 2004 Counsel for the Plaintiffs: Mr J L Evans

Solicitor for the Plaintiffs: Deacons

Counsel for the Defendants at trial: Mr E W Coady

Solicitor for the Defendants at trial: Coadys Barristers & Solicitors

Counsel for the Second Defendant as from 30 September 2004: Mr M A Lincoln

Solicitor for the Second Defendant as from 30 September 2004: GSM Lawyers

Dates of Hearing: 22, 23, 24, 25 and 26 September 2003 and 15 December 2003

Date of Judgment: 30 September 2004