The more strident a rebuke in a judgment the more likely it is to be picked up by the legal public, reported by the media (usually out of context), and viewed as a slight on the reputation of the person rebuked" : "Throwing Stones", Judicial Conference of Australia, 6 October 2007.
322 There is a great deal of difference between acting in discharge of an office without prudence, skill or judgment and acting dishonestly. Imprudence is not in itself dishonesty unless it is so reckless as to lead to the conclusion that the person could not have been making any genuine attempt at all to act in accordance with his or her duty: see Beach Petroleum NL v Abbott Tout Russell Kennedy (1999) 48 NSWLR 1, at [419] (CA); Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378, at 389B-H (PC).
323 If, following the suggestion in Powell v Fryer, I were to say that Mr Irving had failed to act honestly for the purposes of a defence under CA s.1317S(2)(b)(i) and s.1318, when all I had found was that, although with good intentions, Mr Irving had made errors of commercial judgment and had not paid sufficient regard to the interests of creditors of Wines and Vineyards, the phrase "failed to act honestly" would almost surely be picked up by the financial and other press. Mr Irving has a high profile in the business world. Being publicly branded as "having failed to act honestly", out of context, would be most hurtful, damaging and unfair to him and to anyone in his position. I emphasise that these observations are not occasioned by the consideration that Mr Irving has a high profile: I would have made the same observations about anyone, regardless of his or her profile in the community.
324 Lest it be thought that these observations betoken undue modern sensitivity (sometimes ironically termed "political correctness"), I point out that I do no more than echo the words of a more robust judge in a more robust age:
"'Fraud', in my opinion, is a term that should be reserved for something dishonest and morally wrong and much mischief is, I think, done, as well as much unnecessary pain inflicted by its use where 'illegality' and 'illegal' are the really appropriate expressions" : per Wills J in Re Companies Act; Ex parte Watson (1888) 21 QBD 301, at 309.
325 In my view, when considering whether a person has acted honestly for the purposes of a defence under CA s.1317S(2)(b)(i) or s.1318, the Court should be concerned only with the question whether the person has acted honestly in the ordinary meaning of that term, i.e., whether the person has acted without deceit or conscious impropriety, without intent to gain improper benefit or advantage for himself, herself or for another, and without carelessness or imprudence to such a degree as to demonstrate that no genuine attempt at all has been to carry out the duties and obligations of his or her office imposed by the Corporations Act or the general law. A failure to consider the interests of the company as a whole, or more particularly the interests of creditors, may be of such a high degree as to demonstrate failure to act honestly in this sense. However, if failure to consider the interests of the company as a whole, including the interests of its creditors, does not rise to such a high degree but is the result of error of judgment, no finding of failure to act honestly should be made, but the failure must be taken into account as one of the circumstances of the case to which the Court must have regard under CA s.1317S(2)(b)(ii) and s.1318.
326 These conclusions are, I think, supported by authority. In Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115, an insolvent trading claim brought against directors, Tadgell J had to consider a defence under a predecessor to CA 1317S and s.1318. His Honour considered whether the director's conduct was dishonest, in the sense of "involving some moral turpitude": at 196, 198. It is clear that his Honour did not regard the fact that the director had breached his duty to prevent insolvent trading and had failed to make out a defence as constituting dishonesty for the purpose of the exonerating provisions: ex hypothesi, a director would never be entitled to call upon the exoneration provisions unless he or she had breached his or her duty and had failed in all other defences: see at p.198.
327 Likewise, in Australian Securities & Investments Commission v Vines (2005) 56 ACSR 528, Austin J, following Friedrich, considered that "honesty" for the purpose of the sections meant "without moral turpitude": at [43]. His Honour's conclusion as to the meaning of honesty was upheld in the Court of Appeal: Vines v Australian Securities & Investments Commission (2007) 62 ACSR 1, at [568] per Ipp JA and at [797], [800] per Santow JA.
328 As I have recounted above, Mr Irving was aware at all times during the Period that the debts of a large number of trade creditors of Wines and Vineyards continued to age. Only the most insistent creditors were paid; the rest had to take their chances on the Reynolds Group being able to secure a favourable settlement with the ATO and then hold out long enough to sell assets, re-finance and, hopefully, begin to trade more profitably.
329 As I have discussed above at para 266ff, it is sometimes a difficult decision for a director of a trading corporation suffering from liquidity problems to decide whether, and when, to abandon hope of a change in the company's fortunes and to summon the administrators. There are often pressing interests involved in the decision: the jobs of employees will be lost, the investment of shareholders will evaporate, and a promising venture in which a great deal of personal effort may have been expended will end in failure. On the other hand, the livelihood of creditors whose businesses depend on reasonably prompt payment may also be ruined if a company continues to trade while insolvent. When confronted with the necessity of making a decision involving these factors, a director cannot afford to procrastinate or to avoid confronting realities. He or she must ask and honestly answer the hard questions: see paras 269ff above.
330 In the present case, for the reasons which I have already given, I am unable to accept Mr Irving's submission that at all times during the Period he reasonably expected that Wines and Vineyards were able to pay their debts as they fell due, in reliance on assurances from Mr Spicer, Mr Martini or Mr Fryer. He knew that the companies were not paying their debts as they fell due and he had no more than a hope that they would soon be able to do so. For that reason, his defences under CA s.588H(2) and (3) have failed. But it is at this point that the Court embarks on the consideration of the discretionary exoneration defence under CA s.1317S and s.1318: given that a breach of s.588G(2) is proved, given that Mr Irving acted honestly, and given that he had a difficult commercial decision to make, should he be exonerated in all the circumstances of the case?
331 Experienced company directors such as Mr Irving would appreciate that, in some cases, it is not commercially sensible to summon the administrators or to abandon a substantial trading enterprise to the liquidators as soon as any liquidity shortage occurs. In some cases a reasonable time must be allowed to a director to assess whether the company's difficulty is temporary and remediable or endemic and fatal. The commercial reality is that creditors will usually allow some time for payment beyond normal trading terms, if there are worthwhile prospects of an improvement in the company's position. The ATO, likewise, will often defer recovery proceedings in certain circumstances, as the evidence shows. In the present case, the Bank issued a Notice of Default under the Facility Agreement in October 2002, but it did not immediately call in its debt.
332 In the present case, as at the beginning of October 2002, Mr Irving had received advice from Mr Fryer and Mr Jessup that Deloitte would be making a detailed submission to the Commissioner and that Wines had at least a reasonable prospect of achieving a favourable settlement. I accept that reasonable commercial people could decide to wait to see whether the written submission lodged by Deloitte with the ATO on 15 November 2002 produced a quick and positive response such as to enable an asset sale programme and a restructuring to restore solvency to the Reynolds Group. I accept that if a quick and positive response from the ATO had been received, the Group could have set about a restructuring which very probably would have restored solvency. I accept that as at 15 November 2002 there was no reason to predict that a response from the ATO would be negative and might be up to eight months in coming.
333 On 6 December 2002, Mr Jeffs informed Mr Fryer and Mr Jessup that a decision by 15 January 2003 would be difficult because many people in the ATO would be on leave over Christmas. I accept that reasonable commercial people could decide to wait until mid-January 2003 to see whether the ATO would then be able to say with reasonable certainty when a decision could be expected.
334 By the time of Mr Irving's meeting with Mr Fryer on 22 January, it was clear that no progress had been made. Mr Fryer would give no letter of comfort as to Wines' liability or the prospects of settlement. Mr Irving appreciated that he could not simply wait passively until the ATO responded, however long it took: he had to do his best to encourage a quick decision by talking to Mr Evans. He arranged a special meeting between himself, Mr Evans and other ATO officers on 5 February 2003. However, at the end of that meeting, Mr Irving formed the view that it could take up to ninety days more for the ATO to make its decision.
335 In my opinion, it was on 5 February 2003 that Mr Irving ought to have appreciated that there was no reasonable prospect of the Reynolds Group resolving in the short term its dispute with the ATO, and of Wines and Vineyards being able to realise assets quickly enough to pay their debts as they fell due. He ought to have appreciated that debts incurred in October 2002 were already some ninety days overdue and would probably be at least 180 days overdue by the time a decision by the ATO was made. He ought to have realised that there could be no reliable prediction that the decision would be favourable. But, even if the decision were favourable, a further, possibly considerable, time would have to elapse before funds from asset sales and refinancing could flow to the companies.
336 In that situation, in my opinion, Mr Irving should have realised that there was no way of forming a justifiable view that Wines and Vineyards could pay the debts already incurred and about to be incurred in anything like the time frame, or with anything like the degree of probability, that creditors would have allowed when they supplied goods and services. One might ask whether a prospective creditor would have extended credit to Wines and Vineyards on 5 February 2003 if it had known what Mr Irving then knew about the chances of a favourable decision from the ATO and when the cash from realisation of assets might begin to flow. I do not think that many would have chosen to take the gamble.
337 When he came away from the meeting with Mr Evans, Mr Irving should immediately have recommended to the Boards the appointment of administrators. As Mr Irving had primary responsibility for negotiation with the ATO and as he was obviously held in high regard by the other Directors, I have no doubt that had he recommended the appointment of administrators on 5 February, the Group would have been in administration by 6 February 2003. But even if the other Directors had rejected his recommendation and out-voted him, Mr Irving would have been exonerated from liability because he had done what he could to procure cessation of insolvent trading.
338 As I have noted, the Liquidators do not suggest that, in permitting Wines and Vineyards to continue trading during the Period, Mr Irving acted deceitfully or with conscious impropriety or in order to gain any advantage for himself or others. On the contrary, I find that at all times Mr Irving sought and considered the advice of highly competent professionals: not only Mr Spicer as the Group's Chief Financial Officer and Mr Martini as a person experienced in the wine industry, but Messrs Fryer and Jessup whose experience and competence are unquestioned. Mr Irving formed a view and exercised his commercial judgment as to the prospects of Wines being able to resolve its dispute with the ATO in time to restore solvency to the Reynolds Group. That judgment was made in very difficult circumstances; it was made in the knowledge that a large and potentially profitable public company could be placed in liquidation simply because the ATO did not seem to be dealing with a commercial settlement proposal with any degree of expedition. What if the administrators were summoned and the Reynolds Group collapsed, only to be told days later that the ATO agreed to settle the dispute on favourable terms? It is not hard to envisage the Directors' sense of frustration in such circumstances. Mr Irving's commercial judgment proved erroneous, in my view, but I cannot say that it was made recklessly.
339 I conclude that, in failing to prevent Wines and Vineyards trading throughout the Period, Mr Irving acted honestly, for the purposes of a defence under CA s.1317S(2)(b)(i) and s.1318. I find that up to the conclusion of his meeting with Mr Evans on 5 February 2003, but only up to that time, Mr Irving acted as other reasonable, commercially experienced directors might have acted in waiting to see when a decision from the ATO could be expected with some certainty. I would, therefore, hold that, having regard to the conduct of Mr Irving and to the circumstances of the case at the time of his contravention of s.588G(2), Mr Irving should be wholly relieved, pursuant to CA s.1317S and s.1318, of liability for contravention of CA s.588G in respect of debts incurred by Wines and Vineyards from 1 October 2002 up to and including 5 February 2003, but no further.
340 I now turn to the other circumstances of the case, extraneous to the conduct of Mr Irving, in order to determine whether Mr Irving ought fairly to be excused in respect of any liability at all.
Is it relevant that Mr Irving has no D&O insurance