In the matter of Empireal Ltd (in Liq) (Receiver and Manager Apptd) [2026] NSWSC 252 | Case summary

Medium Neutral Citation: In the matter of Empireal Ltd (in Liq) (Receiver and Manager Apptd) [2026] NSWSC 252

Hearing dates: 5, 9-12, 16-18 December 2025

Date of orders: 23 March 2026

Decision date: 23 March 2026

Jurisdiction: Equity - Corporations List

Before: Nixon J

Decision: 1. The Originating Process filed 24 July 2023 is dismissed.
2. The Plaintiff pay the Defendant’s costs of the proceeding, as agreed or assessed.

Catchwords: CORPORATIONS – Directors and officers – Directors’ duties – duty not to make or pursue a gain where conflict or possible conflict between fiduciary duty and personal interest – duty to act in food faith in the best interests of company and for a proper purpose – duty not to use position as director or officer improperly – where Defendant was director of Plaintiff – where Plaintiff and a number of related entities were placed into voluntary administration, following resolution by Defendant and fellow directors – whether Defendant and fellow directors were genuinely of the opinion that those entities were insolvent or likely to become insolvent – whether Defendant was pursuing a personal benefit by voting in favour of resolutions – whether Defendant breached his fiduciary or statutory duties to the Plaintiff in voting in favour of resolutions to appoint voluntary administrators
CORPORATIONS – Directors and officers – Directors’ duties – where an entity controlled by Defendant entered into Restructuring Support Deed with secured lender to the group by which secured lender agreed to support a deed of company arrangement proposed by that entity in relation to two subsidiaries of Plaintiff – where creditors of those two subsidiaries of Plaintiff resolved that those companies execute deeds of company arrangement proposed by entity controlled by Defendant - where Defendant, as director of those two subsidiaries, consented to the redemption of redeemable preference shares for $1.00 held by one entity in the other, so as to satisfy a condition precedent of restructure – where effect of restructure was that the Plaintiff was no longer a holding company of the operating entities of the group, and those entities were held by an entity of which the Defendant was sole beneficial owner – whether Defendant breached his fiduciary duties to the Plaintiff in causing a company which he owned to enter into the Restructuring Support Deed – whether Defendant breached his fiduciary duties to the Plaintiff in taking steps, as a director of the Plaintiff’s subsidiary, to cause that entity to consent to the redemption of the redeemable preference shares
REMEDIES – Account of Profits – Equitable compensation – Compensation under s 1317H of Corporations Act 2001 (Cth) – Causation – whether sufficient causal link between Defendant’s conduct and alleged profits or damage – whether other equitable and statutory remedies available – where quantification of profits and compensation depended on valuation of the business of the group and valuation of enterprise and equity value of different entities within the group – consideration of issues in dispute between expert valuers

Legislation Cited: Corporations Act 2001 (Cth) ss 95A, 181, 182, 198G, 436A, 447A, 588G, 1317H
Evidence Act 1995 (NSW) s 140

Cases Cited: Adler v Australian Securities and Investments Commission [2003] NSWCA 131
Agricultural Land Management Ltd v Jackson (No 2) (2014) 48 WAR 1; [2014] WASC 102
Anchorage Capital Master Offshore Ltd v Sparkes (2023) 111 NSWLR 304; [2023] NSWCA 88
Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 265 CLR 1; [2018] HCA 43
Anderson v Canaccord Genuity Financial Ltd (2023) 113 NSWLR 151; [2023] NSWCA 294
Australian Careers Institute Pty Ltd v Australian Institute of Fitness Pty Ltd [2016] NSWCA 347
Australian Securities and Investments Commission v iSignthis Ltd [2024] FCA 669
Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052
Australian Securities and Investments Commission v Mitchell (No 2) [2020] FCA 1098
Australian Securities and Investments Commission v Adler [2002] NSWSC 171
Birtchnell v Equity Trustees, Executors & Agency Co Ltd (1929) 42 CLR 384; [1929] HCA 24
Blythe v Northwood (2005) 63 NSWLR 531; [2005] NSWCA 221
Breen v Williams (1996) 186 CLR 71 at 113; [1996] HCA 57
Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34
Canstruct Pty Ltd v Project Sea Dragon Pty Ltd (subject to a deed of company arrangement) (No 4) [2024] FCA 112
Cassegrain v Gerard Cassegrain & Co Pty Ltd (2012) 264 FLR 392; [2012] NSWSC 834Chan v Zacharia (1984) 154 CLR 178; [1984] HCA 36
Chew v R (1991) 4 WAR 21
Chew v R (1992) 173 CLR 626; [1992] HCA 18
Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373; [1975] HCA 8
Coope v LCM Litigation Fund Pty Ltd [2016] NSWCA 37
Diakovasili v Order of AHEPA NSW Inc [2023] NSWSC 1282
Downey v Crawford [2004] FCA 1264
Doyle v Australian Securities and Investments Commission (2005) 227 CLR 18; [2005] HCA 78
Giumelli v Giumelli (1999) 196 CLR 101; [1999] HCA 10
Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6
Hakea Holdings Pty Ltd v Neon Underwriting Ltd (2023) 296 FCR 611; [2023] FCAFC 34
Hart Security Australia Pty Ltd v Boucousis [2016] NSWCA 307
He v Sunnya Pty Ltd [2025] NSWCA 78
Ho v Akai Pty Ltd (in liq) (ACN 001 500 714) [2006] FCAFC 159
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; [1984] HCA 64
Howard v Federal Commissioner of Taxation (2014) 253 CLR 83; [2014] HCA 21
Hylepin Pty Ltd v Doshay Pty Ltd (2021) 288 FCR 104; [2021] FCAFC 201
In the matter of Cyprus Community of NSW Ltd [2024] NSWSC 1629
John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19
Kazar v Duus (1998) 88 FCR 218; [1998] FCA 1378
Lewis v Nortex Pty Ltd (in liq) [2004] NSWSC 1143 Links Golf Tasmania Pty Ltd v Sattler (2012) 213 FCR 1; [2012] FCA 634 Maguire v Makaronis (1997) 188 CLR 449; [1997] HCA 23 Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449; [1992] HCA 66 News Ltd v South Sydney District Rugby League Football Club Ltd (2003) 215 CLR 563; [2003] HCA 45 Nocton v Lord Ashburton [1914] AC 932 O’Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262 Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187 Pilmer v Duke Group Limited (in liq) (2001) 207 CLR 165; [2001] HCA 31 Quin (in his capacity as liquidator of Roderick Group Pty Ltd (in liq)) v Vlahos (2021) 64 VR 319; [2021] VSCA 205 R v Byrnes (1995) 183 CLR 501; [1995] HCA 1 Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789 Re Custom Bus Australia Pty Ltd (in liq) [2021] NSWSC 1036 Re Keneally as administrator of Australian Blue Mountain International Cultural & Tourist Group Pty Ltd (admin apptd) [2015] NSWSC 937 Re Lime Gourmet Pizza Bar (Charlestown) Pty Ltd (formerly under administration) [2015] NSWSC 244 Sangha v Baxter [2009] NSWCA 78 Special Gold Pty Ltd (in liq) v Dyldam Developments Pty Ltd (subject to a deed of company arrangement) (No 2) [2025] FCA 825 Streeter v Western Areas Exploration Pty Ltd (No 2) [2011] WASCA 17 Sunnya Pty Ltd v He [2025] NSWCA 79 Sydlow Pty Ltd (in liq) v Melwren Pty Ltd (in liq) (1994) 13 ACSR 144 V-Flow Pty Ltd v Holyoake Industries (Vic) Pty Ltd [2013] FCAFC 16 VicBeef Holdings Pty Ltd v Chen [2021] VSC 546 Wagner v International Health Promotions (1994) 15 ACSR 419 Warman International Ltd v Dwyer (1995) 182 CLR 544; [1995] HCA 18 Woodgate v Davis (2002) 55 NSWLR 222; [2002] NSWSC 616 Xiao v BCEG International (Australia) Pty Ltd (2023) 111 NSWLR 132; [2023] NSWCA 48 Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484; [2003] HCA 15

Category: Principal judgment

Parties: Empireal Ltd (in Liquidation) (Receiver and Manager Appointed) (Plaintiff)
Leslie Janusz Hooker (Defendant)

Representation: Counsel:
R Foreman SC / K Lindeman / W Liu (Plaintiff)
D Cook SC / A Flick (Defendant)
Solicitors:
Corrs Chambers Westgarth (Plaintiff)
Johnson Winter and Slattery (Defendant)

File Number(s): 2023/234844

Publication restriction: Nil

JUDGMENT

The Plaintiff, Empireal Ltd (in liq) (receiver and manager appointed), was at all material times a company within the LJ Hooker Group.
The Defendant, Mr Leslie Janusz Hooker, was a director of Empireal and of various other entities within the LJ Hooker Group. Mr Hooker is the grandson of the founder of the LJ Hooker Group.
Empireal claims that Mr Hooker breached the duties which he owed to Empireal pursuant to the Corporations Act 2001 (Cth) (Act) and at general law, by reason of a number of steps which Mr Hooker took in relation to a restructure of the LJ Hooker Group in August 2020.
At all material times prior to this restructure, Empireal owned LJHRES Holdings Pty Ltd, which in turn owned LJH RES Ltd. Empireal, LJHRES Holdings and LJH RES were holding companies and did not carry out trading operations, incur trading debts or have any employees.
The subsidiaries of LJH RES operated the LJ Hooker Group’s core franchise and asset management business (Core Business). There were around 400 LJ Hooker franchise offices offering real estate agency services across Australia and New Zealand. I refer to LJH RES and its subsidiaries as the LJHRES Group.
The LJ Hooker Group also operated a Technology Business, which was in the startup phase of developing a real estate digital platform. That business was conducted by LJX Pty Ltd (formerly named LJX Labs Pty Ltd) and its subsidiaries (the LJX Group).
Empireal was also the holding company of LJX Holdings Pty Ltd. This entity was the borrower under a $41m facility provided by Koi Structured Credit Pte Ltd (Koi Facility). Empireal and various entities within the Technology Business, guaranteed LJX Holdings’ obligations under the Koi Facility.
At around the same time that the Koi Facility was entered, Perpetual Corporate Trustee Ltd in its capacity as trustee for the ICG Australia Senior Loan Fund (ICG) entered into a facility agreement with LJH RES, pursuant to which ICG loaned around $43m to LJH RES. At the time of the restructure that is the subject of this proceeding, each of LJHRES Holdings, LJ Hooker Corporation Ltd, and various other entities in the LJHRES Group (but not Empireal) was a guarantor in respect of the ICG facility.
In short, ICG was the “senior lender” to the LJ Hooker Group, taking security over the assets of entities in the LJHRES Group, whilst Koi was the “mezzanine lender”, with security over the assets of Empireal and various entities in the LJX Group.

Factual Background

In this section of the judgment, I set out matters which are not contentious, being, for the main part either:
factual findings which Empireal sought in a document annexed to its submissions, headed “Annexure A to the Plaintiff’s Closing Submissions – Factual background”, and which were not disputed in Mr Hooker’s responsive document; or
matters which are established by the contemporaneous documentary record.
Where there is a factual dispute between the parties regarding the significance of, or proper interpretation of, a particular document, or regarding the knowledge or intentions of the key participants in respect of the matters set out below, I have generally addressed any such dispute (to the extent that it is necessary in order to resolve the real issues in the proceeding), when dealing below with the various claims advanced by Empireal.

Corporate Structure prior to 8 August 2020

At all relevant times prior to 8 August 2020, the corporate structure of the LJ Hooker Group was as follows:
In short:
Empireal was a wholly owned subsidiary of Empireal Holdings Limited, and owned 100% of the shares in each of LJHRES Holdings and LJX Holdings;
LJHRES Holdings and its subsidiary, LJH RES, were the parent entities of the LJHRES Group, which operated the Core Business through LJ Hooker Corporation and its subsidiaries; and
LJX Holdings had one subsidiary, LJX Partner Office Holdings Pty Ltd. LJX Holdings did not, despite its name, own the shares in LJX and LJHA (LNS) Pty Ltd (being the entities which operated the Technology Business). Instead, each of LJX and LJHA was a subsidiary of Ausreal Pty Ltd.
One feature of this corporate structure which should be noted is that the entities within the LJ Hooker Group which operated the Core Business had “LJ Hooker” in their name, while the other entities within the Group did not.
At all relevant times, the board of directors of each of Empireal, LJHRES Holdings, LJH RES, LJ Hooker Ltd and LJ Hooker Corporation comprised Mr Hooker, Mr Bryan Weir and Mr Simon Heathcote.
The board of directors of each of LJX Holdings and LJX comprised Mr Hooker and Mr Weir.

The Koi Facility

Koi is an investment fund based in Singapore which was, until December 2020, managed by Olympus Capital Holdings Asia Pte Ltd, pursuant to an Investment Management Agreement dated 7 October 2013. (On 9 December 2020, Olympus was rebranded as Orion Credit Capital Asia Pte Ltd, however, this did not change the operation of the underlying Investment Management Agreement.)
Decisions in respect of approving any loan investments, including any amendments to loans, for the Koi fund were made by the Olympus Investment Committee (Olympus IC). During the relevant period, the Olympus IC comprised, Mr Daniel Mintz, Mr Gaurav Malik, and Mr Nitish Nirbhaya Agarwal.
In around August 2017, Mr Hooker was introduced to Mr Agarwal, who was at that time the Managing Director of Olympus. Mr Agarwal introduced the possibility of a mezzanine loan from Koi.
On 13 December 2017, Koi and LJX Holdings entered into the Koi Facility. The transaction documents that were executed on that date in connection with the Koi Facility included:
a Subscription Agreement between LJX Holdings (as Borrower), Koi (as Agent) and Madison Pacific Trust Limited (as Security Trustee);
a Warrant and Put Call Option Deed between Koi and Empireal;
a Security Trust Deed between Koi (as Agent, Original Lender and Original Warrant Holder), LJX Holdings (as Borrower and Original Security Provider), Empireal Holdings, Empireal, LJX Partner, Hooker Capital Pte Ltd, and Ausreal (as Original Security Providers), and Madison (as Security Trustee);
the following Transaction Security Documents:

(a) a General Security Deed (Group) between Empireal, LJX Holdings, and LJX Partner (as Grantors), and Madison (as Security Trustee); (b) a Specific Security Deed (Empireal Shares) between Empireal Holdings (as Grantor) and Madison (as Security Trustee); (c) a Specific Security Deed (LJX Labs Shares) between Ausreal (as Grantor) and Madison (as Security Trustee); and (d) a Security Assignment Deed dated 13 December 2017 between Hooker Capital (as Assignor), and Madison (as Security Trustee);

Sponsor Side Letters dated 13 December 2017 from LJX Holdings to Koi; and
a Loan Note Deed Poll dated 13 December 2017 executed by LJX Holdings.
The terms of the Koi Facility included that:
Koi provided for a facility of $41.55m to be made available to LJX Holdings as follows:

(a) $5.5m for an investment into LJX; (b) $29.5m for the redemption of the convertible preference shares issued by LJH RES; (c) $3.2m to be held by LJX Holdings to fund additional investments in LJX; and (d) $3.35m for the purposes of LJX Holdings and Empireal;

Koi was entitled to interest on the facility sum, as follows:

(a) “Cash Pay Interest” on the entirety of the loan at a rate of 6% per annum, payable quarterly; (b) “Payment-in-kind Interest”, which automatically capitalised and accrued on the outstanding principal at a rate of between 6% and 12% per annum; and (c) Default interest at a rate of 3% per annum, plus the rate of “Cash Pay Interest” and “Payment-in-kind Interest” which would have applied if the overdue amount had not become due, compounding quarterly; and

Empireal was required to maintain a ratio of Total Debt to Group EBITDA (the “Consolidated Debt Ratio”) below the following specified ratios for each respective financial quarter (cl 19.1(a) of the Subscription Agreement):

an “Event of Default” included a circumstance in which an Obliger does not pay “any amount payable pursuant to a Finance Document” unless its failure to pay is caused by an administrative or technical error; or a Disruption Event, and payment is made within two Business Days of the due date (cl 21.1).
The Koi Facility was guaranteed by each of Empireal Holdings, Empireal, Ausreal, LJX Holdings and LJX Partner. Pursuant to cl 16 of the Subscription Agreement, the guarantee given by Empireal Holdings was a limited recourse guarantee (being limited to its shares in Empireal). Further, pursuant to cl 2 of the General Security Deed, Empireal’s shares in LJH RES (but not its shares in LJHRES Holdings) were excluded from the definition of “Secured Property”.
The Warrant and Put Call Option Deed gave 1,000 warrants to Koi, each of which conferred onto Koi the right to cause Empireal to issue to Koi shares equivalent to 0.00431% of Empireal’s share capital, subject to the LJ Hooker Group’s right to purchase that equity from Koi.
On 14 March 2018, LJX (which was then named LJX Labs) and LJHA (which was then named LJX Sydney) acceded as “Post Whitewash Guarantors” of the Koi Facility, and the following accession documents were executed on that date:
General Security Deed between LJX and LJHA (as Grantors), and Madison (as Security Trustee);
Accession Deed between LJX and LJHA (as Acceding Parties) and Madison (as Security Trustee);
Accession Letter from Empireal, LJX and LJHA (as Additional Obligors) to Koi (as Agent);
Verification Certificate from LJX to Koi; and
Verification Certificate from LJHA to Koi.
The term “whitewash” is defined in the Subscription Agreement as referring to the contemplated transfer of the shares in LJX from Ausreal to LJX Holdings.
Accordingly, from 14 March 2018, the guarantors of the Koi Facility were each of Empireal Holdings, Empireal, Ausreal, LJX Holdings, LJX Partner, LJX and LJHA.
None of the entities in the LJHRES Group was a guarantor of the Koi Facility.

The ICG Facility

On 14 December 2017, LJH RES, as Principal Borrower, entered into a Term Syndicated Facility Agreement with ICG for the sum of $43,375,000 (ICG Facility). The ICG Facility replaced an earlier facility that had been provided by Macquarie Bank Ltd to LJH RES.
The terms of the ICG Facility included that:
LJH RES must pay interest on the facility sum by reference to the aggregate of a margin of between 3.75% and 5% (depending on the Net Leverage Ratio, being the ratio of Net Debt and EBITDA at the relevant calculation date), and a BBSY Bid rate that was benchmarked against the bank bill swap rate (cl 8);
LJH RES must ensure that, as at each “Calculation Date” (being each of 31 December, 31 March, 30 June and 30 September), the ratio of Net Debt to EBITDA for the previous 12 months does not exceed a specified ratio, this ratio being, relevantly, 2.50:1 for the period from 1 January 2020 until the Maturity Date (cl 19.1(b), read with definitions of “Net Leverage Ratio”, “Calculation Date” and “Calculation Period” in cl 1.1);
LJH RES must repay all outstanding amounts, plus interest, on the “Maturity Date”, being the date three years after “Financial Close” (such that this repayment fell due in December 2020) (cl 6.1);
an Event of Default occurs if, among other things:

(a) subject to cl 19.6 (which provided that LJH RES has the right to cure any breach by procuring an additional Equity Contribution), the covenant in subparagraph (2) above is not satisfied (cl 21.2(a), read with definition of “Financial Covenant” in cl 1.1); or (b) an administrator is appointed to any Borrower, any Guarantor or Empireal (cl 21.6(a), read with the definition of “Insolvency Event”, “Obligor” and “Parent” in cl 1.1); and

at any time while an Event of Default subsists, the Agent may, and must if ICG so directs, declare, by notice to LJH RES, that the Secured Money is immediately due and payable (cl 21.18).
The following security documents were executed in connection with the ICG Facility (ICG Security Documents):
a Specific Security Deed between Empireal (as Grantor) and Global Loan Agency Services Australia Nominees Pty Ltd (GLAS Nominees) (as Security Trustee);
a General Security Deed between LJ Hooker New Zealand Ltd, a subsidiary of LJ Hooker Corporation (as Initial Grantor), and GLAS Nominees (as the Secured Party);
a General Security Deed between LJH RES, LJ Hooker Ltd, LJ Hooker Corporation, LJ Hooker Franchising Ltd and LJ Hooker International Operations Pty Ltd, the latter two being subsidiaries of LJ Hooker Corporation (as Grantors), and GLAS Nominees (as the Secured Party);
a Security Trust and Intercreditor Deed between LJH RES (as Principal Borrower), Empireal, LJ Hooker Corporation, LJ Hooker Franchising, LJ Hooker International, LJ Hooker Ltd, and LJ Hooker New Zealand (as Original Guarantors), GLAS Nominees (as Security Trustee), Global Loan Agency Services Australia Pty Ltd (GLAS) (as Agent), and ICG (as Original Lender);
a Specific Security Deed between Mr Weir (as Grantor) and GLAS Nominees (as Security Trustee); and
a Specific Security Deed (New Zealand) between LJ Hooker Corporation (as Grantor) and GLAS Nominees (as the Secured Party).
Pursuant to the ICG Security Documents, the “Original Guarantors” were Empireal, LJ Hooker Corporation and various entities within the LJHRES Group.
It was a term of the Security Trust and Intercreditor Deed that each of the Original Guarantors irrevocably and unconditionally jointly and severally undertook that whenever an Obligor (including LJH RES) does not pay any amount under or in connection with any Finance Document, the Guarantor shall immediately on demand pay that amount as if it was the principal obligor (cl 17.1).
At the time of entry into the ICG Facility, Empireal held 12,507,745 ordinary shares, 12,507,746 Class H preference shares, and 27,885,020 redeemable preference shares (RP Shares) in LJH RES.
It was a term of the ICG Facility that LJHRES Holdings be “interposed” between Empireal and LJH RES (cl 23.5). This required Empireal to transfer all of the shares that it held in LJH RES to LJHRES Holdings, which was established as a wholly owned subsidiary of Empireal.

Amendment and Restatement Agreement

As set out at paragraph [26(3)] above, the Financial Covenants under the Subscription Agreement in respect of the Koi Facility required the Total Debt to EBITDA ratio to ratchet down each financial quarter.
In January 2019, Mr Hooker informed Mr Agarwal and Ms Ming Eng that it was anticipated that a breach of this covenant would occur by June 2019, because the Total Debt to EBITDA ratio was not going to ratchet down in the forthcoming financial quarters at the rate required by the Koi Facility. (Ms Eng was the deal team leader in respect of the Koi Facility, and reported to Mr Agarwal.)
The Olympus IC agreed to negotiate with the LJ Hooker Group for early repayment of part of the Koi Facility through a fresh equity injection in exchange for resetting the covenant ratio levels.
On 31 August 2019, the parties to the Koi Facility entered into an Amendment and Restatement Agreement in relation to the Subscription Agreement which relevantly included, amongst other things, the following terms:
LJX Holdings would repay $3.5 million to Koi by 31 December 2019 (2019 Repayment) and a further $6,217,875 by 30 June 2020; and
the ratchetting down of the Net Debt / EBITDA ratio was amended so as to enable the Group to comply with the covenant, including a change to the ratio from Total Debt / EBITDA to Net Debt / EBITDA.
Each of LJX, LJHA and Madison also entered into a Deed of Release dated 31 August 2019, which released LJX and LJHA from all of their obligations and liabilities owed in connection with the Koi Facility, provided that there was an equity injection of at least $5 million into LJX after 24 July 2019 on terms that were acceptable to Koi.
Also on 31 August 2019, a Subordination Deed was executed by Empireal, Ausreal, and LJ Hooker Corporation (as Subordinated Creditors), LJX (as Debtor) and Koi (as Agent). The effect of the Subordination Deed was that the debts owed by LJX to each of Empireal, Ausreal and LJ Hooker Corporation were subordinated to the debt owed to Koi.

Potential investment by IWI

On or about 11 September 2019, Mr Hooker commenced negotiations with lWIinvestor Group Holdings Limited (IWI) in relation to a potential investment into LJX. IWI is a Māori-owned investment advisory firm in New Zealand.
On 14 November 2019, IWI and LJX entered into a term sheet in relation to a proposed investment of $20m by IWI, by means of the issue of two tranches of redeemable convertible preference shares.
An Olympus IC memorandum dated 16 December 2019 referred to the term sheet with IWI and identified the following matters as “Key Implications”:

“º Should the proposed LJX equity deal not materialize and if the Company is not able to meet the A$3.5m Dec repayment, we would have to be prepared to look at a full/partial divestment of the Group. Given the strong brand name and market position, the deal team is still of the view that there will be interests in acquiring the Group and the collateral cover is sufficient for OCAC to recover at par.

º In the interim, the Company will still have to meet the revised Net Debt / EBITDA covenants which will rachet down to 5.5x by June 2020, so OCAC will still retain its rights to take actions sooner should the Company’s performance deteriorate.”

On 19 December 2019, IWI and LJX signed a revised term sheet, which was provided to Koi on 24 December 2019. Under the revised term sheet, it was proposed that due diligence be completed by 25 January 2020 (being the “Commitment Date”), with the subscription date being 7 February 2020.
On 30 December 2019, Koi entered into an amendment letter to the Amendment and Restatement Agreement (Amendment Letter) which provided, relevantly, as follows (emphasis in original):

“(a) Pursuant to clause 36 (Amendments and waivers) of the Amended Subscription Agreement, the Agent (acting on behalf of the instructions of the Original Lender) agrees to the Requests for Deferral, subject to the following conditions:

…

(ii) pursuant to clause 29.7 (Business Days), the Cash Pay Interest that was originally due on 31 December 2019 shall accrue interest at a rate equal to the rate of Interest that is payable on that date, being 17% per annum, from 1 January 2020 to the date of payment (which shall be no later than 10 February 2020) (That accrued interest being the ‘Upcoming Cash Pay Interest’);

(iii) the Upcoming Cash Pay Interest shall be paid on the same date as the Upcoming Interest Payment (which shall be no later than 10 February 2020); and

…

(b) A failure by the Borrower to effect the 2019 Repayment, the Upcoming Interest Payment and/or the Upcoming Cash Pay Interest by 10 February 2020 shall constitute an Event of Default for the purposes of clause 21.1 (Non-payment) of the Amended Subscription Agreement.”

The effect of this clause was to extend the date for the 2019 Repayment from 31 December 2019 to 10 February 2020 (being the first business day after the subscription date specified in the revised term sheet with IWI), to defer the upcoming interest payments to the same date, and to make a failure by LJX Holdings to pay such amounts by that date an Event of Default under the Koi Facility.
As at 10 February 2020, IWI had not committed to subscribe for equity in LJX and, in those circumstances, LJX Holdings did not make the 2019 Repayment which fell due on that date, or pay the interest which also fell due on that date. Accordingly, from 10 February 2020 onwards, there was a subsisting Event of Default under the Koi Facility.
On 10 February 2020, Mr Hooker sent an email to Mr Agarwal which enclosed a further revised Term Sheet that Mr Hooker had been negotiating with IWI. Mr Hooker advised Mr Agarwal that he expected IWI to sign this further revised Term Sheet “shortly”, but that the commitment date from IWI had been “pushed back” to 18 February 2020, with the funding date “shortly thereafter”.
On 19 February 2020, Ms Eng sent an email to Mr Wilson Leung of Madison, stating that Koi “would like to connect with Borrelli Walsh to discuss a potential deal in Australia and are looking to speak with someone there who is very experienced in acting as a receiver in Australia”. Mr Agarwal agreed in cross-examination that Koi was at this time looking to be in a position to appoint receivers to entities in the LJ Hooker Group, if the Olympus IC decided to go ahead and do so.
Also on 19 February 2020, a further revised IWI Term Sheet was signed by each of IWI and LJX, which stipulated a subscription amount of $20m, a commitment date on or before 31 March 2020, and a subscription date of 31 March 2020.
On 21 February 2020, this further revised term sheet was provided to Koi. An Olympus IC memorandum of that date recorded that, in addition to LJX Holdings failing to make the 2019 Repayment of $3.5m and to pay $764,613 in interest that was also due on 10 February 2020, “the Net Debt/EBITDA was 6.19x, and hence the Company was in breach of the December covenant of 6x”. The Olympus IC referred to the revised IWI term sheet, noting that, should the proposed investment eventuate, that would “help in de-risking our Facility”, and stated that: “Should the proposed transaction not materialize, we will have to be prepared to look at a full/partial divestment of the Group, either working in cooperation with the Borrower or via an enforcement action.” The Olympus IC memorandum concluded as follows (emphasis added):

“Deal team recommendations:

º Equity investment of A$20m, if it materializes, will be a significant positive outcome for the Group and hence for [Koi]. On the other hand, if [Koi] calls an event of default at this point, it will terminate the equity discussion. Given the tangible progress on the term sheet, we believe that the investor interest is real. Hence, the deal team would recommend not to take any enforcement action at this point but also not to provide a formal waiver of the payment default and covenant breach.

º Also, the deal team will start engaging with the lawyers to plan out enforcement action so that we are well prepared to take enforcement action at short notice if we believe that equity investment is unlikely.”

It is plain from this document that, as at 21 February 2020, the Olympus IC was not intending to waive the Event of Default which had arisen upon the failure by LJX Holdings to make the 2019 Repayment by the (extended) due date of 10 February 2020, and was planning to take enforcement action at short notice, based upon that existing Event of Default, if it became apparent that the proposed IWI investment was unlikely.
Mr Agarwal agreed, in cross-examination, that “the decision not to formally waive or extend the 10 February [2020] deadline was a deliberate decision” by the Olympus IC, in order “to allow Koi to move immediately if it wanted to with an event of default”.
On 5 March 2020, Mr Agarwal sent an email to Mr Hooker and to Mr Weir in which he stated as follows (emphasis added):

“We had a robust discussion earlier today with our investment committee regarding the outstanding events of default under the [Koi Facility] relating to the missed payment in February and the breach of the December net leverage financial covenant. While the group agreed that there has been tangible progress on the discussions with the NZ investor, there were strong concerns that the process has already got significantly delayed, and even now there is no certainty that investment will be concluded and in the projected time frame (end March). Question was also raised if we are now charging default interest on the facility.

We agreed to have another investment committee meeting next week after having the latest update from you regarding the investor discussions, and after receiving some further information on the business for which [Ms Eng] will separately reach out to your team.”

Later that evening, Ms Eng sent an email to Mr Weir and Mr Heathcote, requesting certain financial information in respect of LJH RES and LJX, so that it could be provided to the Olympus IC. Mr Heathcote responded to that request, on behalf of the board of Empireal, on 12 March 2020 (see below).

Correspondence in March 2020 in response to COVID-19

In March 2020, cases of COVID-19 were increasing in Australia. The first major lockdowns in response to the pandemic commenced in that month.
On 12 March 2020, Mr Heathcote sent Mr Agarwal and Ms Eng a document entitled “COVID-19 LJ Hooker Olympus Analysis – March 2020”. This document included statements that:
it was “still too early to understand the full ramifications that the COVID-19 outbreak will have on Australian households, businesses and economy”;
the Australian economy was “well-placed leading into the COVID-19 outbreak”, and the Australian property markets were “head[ing] into this crisis on solid footing”; and
the LJ Hooker Group “should [fare] relatively well in the [COVID-19] crisis”, including because of the strength of its brand and its “resilient operating model” with “high operating margins”.
On 19 March 2020, Mr Hooker sent an email to Mr Agarwal and Ms Eng, in which he extracted a number of news articles, and stated that it “[s]ounds like the RBA is cooking up a big bailout plan for SMEs akin to the UK” and that this would “likely be positive for our business and the franchise network”.
In around mid-March 2020, in response to the developing COVID-19 pandemic:
the Australian Government announced a $17.6 billion economic support package; and
the Australian Taxation Office (ATO) announced a range of measures to help individuals and businesses manage their tax liabilities during the pandemic.
Around this time, ICG also requested information from the LJ Hooker Group regarding the impact of the COVID-19 pandemic.
On 16 March 2020, Mr Vincent Ling of ICG sent an email to Mr Heathcote, to which Mr Hooker was copied, which stated that ICG was doing a “deep dive into our investment portfolio to better understand how each companies are placed in these times of uncertainty”, and requested that Mr Heathcote provide information in response to a number of questions in order to “understand how we can be best prepared to be supportive of the company”.
Mr Heathcote responded to Mr Ling’s queries on 20 March 2020. In particular, he stated, in response to ICG’s request for “an update of Covid-19 exposure across the franchisee network”, that attendance at open homes and auction clearance rates remained strong, and that “head office [was] providing guidance to the network including reiterating the governments advice and ensuring the network have the ability to continue to have capacity to sell property and continue with property management”. He added that: “We are expecting the virus to impact, however, no one really knows the extent of that downturn”.
On 25 March 2020, after new restrictions were imposed in respect of real estate auctions and open house inspections, Mr Ling emailed Mr Heathcote seeking to schedule a telephone conversation with the LJ Hooker Group management to discuss business operations as a result of those restrictions, the impact on the rental book, the liquidity position and the mezzanine debt position (being the position in respect of the Koi Facility), adding that ICG wanted “to understand how we can be best prepared to be supportive of the company”.

Notice of Outstanding Payments and Olympus IC memorandum of April 2020

On 6 April 2020, Koi sent a “Notice of Outstanding Payments” and an “Interest Notification” to Empireal. The Notice of Outstanding Payments referred to various payments which were outstanding, including the 2019 Repayment in the amount of $3.5m, and a number of interest payments totalling more than $1.64m. The Notice of Outstanding Payments stated that interest was continuing to accrue on these outstanding amounts, and further stated as follows:

“For the avoidance of doubt, this notice (and any conduct or correspondence to date) is not a waiver of any rights in relation to the matters set out herein and no Finance Party shall be construed to have waived any actual or anticipated breach of any provision of the Facility.”

An Olympus IC memorandum dated 16 April 2020 provided the following update in relation to the LJ Hooker Group and the Koi Facility (emphasis added):

“Current Status & Updates

▪ Further to our last IC update on 21 Feb 2020, [the LJ Hooker Group] continued to maintain its performance until the month of February 2020 with revenue and EBITDA consistent with the past 1Y average. However, due to the lock-down measures enforced in Australia since March, there is significant uncertainly in the near term.

▪ The equity discussion with the NZ investor [IWI] has also been put on hold amid the market situation. As such, the group was not able to make the agreed repayment of AUD3.5m under the [Koi Facility]. Further, as the group's primary objective now is to ensure that its business has sufficient liquidity to operate, it has not made the Cash Interest payments due in December and March under the [Koi Facility].

Near Term Impact

▪ We have had a number of discussions with the Company and they currently have little visibility on the revenues and cash flows in the following months to be able to provide us with a satisfactory repayment plan. While the property transaction volume will likely fall significantly due to the lock-down measures, the Company believes the aggressive government stimulus would likely provide some support to the industry. The Company has engaged PWC to assist with running scenario analyses and have asked for some more time to report back to us.

Long Term Impact

▪ Should a protracted lockdown occur in Australia, it may take longer than expected for the property market to recover and the Company’s cash flows may continue to be limited. Also, the group may face challenges raising equity or a full financing package sufficient to repay all liabilities accrued under the [Koi Facility]. Under such event, the Company may (need to) be forced to dilute or sell its equity at a lower valuation in order to fulfill its debt obligations.

▪ There is likely to be interest from strategic players and/or financial investors despite the current market situation …

▪ The deal team has been actively preparing for a potential enforcement if required. Following steps taken to date:

º We have had several conversations with Baker McKenzie.

º We have confirmed with the Security Agent that it continues to hold all original security documents (e.g. share certificates).

º We have also spoken with a few receivership firms and have short-listed two of them (McGrathNicol and KordaMentha). We plan to finalize the terms with one of them should we need to go down the enforcement route.

▪ While the deal team is comfortable with our enforcement rights and the value of the collateral, we think the timing of enforcement would be essential to a smooth recovery process. Once an EoD [Event of Default] is called, the directors of the relevant companies will likely commence the voluntary administration process which may cause franchisees to lose confidence, especially given the current situation. Our preference is to first try to work with the Company to stabilize the business and to identify the most feasible repayment plan for the [Koi Facility], while retaining all the rights of [Koi] to take legal actions at any time.

Recommendation

▪ With the uncertainty in the market and the lock-in situation in Australia, we expect the events of defaults under the [Koi Facility] to continue in the next few months and hence would recommend a downgrade in ratings from OCAC 3 to OCAC 5. We also propose to write down the value of put option to zero in the current conditions.”

When taken to this document in cross-examination, Mr Agarwal agreed that, by this time, “Koi was actively preparing for the enforcement of its security”. He explained that the downgrade in ratings to “OCAC 5” indicated that the Koi Facility was now regarded as “below par”.

Emails in April 2024 in relation to potential restructure

On 21 April 2020, Mr Weir sent Mr Hooker an email with the subject line “LJ Hooker Group”, in which Mr Weir provided his “summary of a possible plan”. Mr Weir suggested that, if it “looks okay” to Mr Hooker, it be sent “on to G+T [Gilbert + Tobin] for their sign-off”. Mr Weir commenced by noting that LJH RES owned the entities which operated the Core Business; that LJH RES owed ICG approximately $38m; that ICG had “recently written its loan down to $30 million”; and that Koi had “no security over LJHRES or any of its group assets”. Mr Weir then set out the following proposal, noting that it “assume[d] ICG prior consent and co-operation”:

“1. Empireal Holdings makes arrangement with one of its shareholders to secure a loan or an equity injection of (say) $[20] million.

2. Empireal Holdings obtains a market valuation of LJHRES and the LJ Hooker business group – assume it attributes an enterprise value of $40 million.

3. The directors of LJHRES, LJ Hooker Limited and LJ Hooker put all 3 companies (or perhaps the entire group?) into voluntary administration (VA).

4. Empireal Holdings makes offers to the administrator:

a. to acquire all of the shares in LJ Hooker Corporation for a price equal to (market value - current ICG debt);

b. to use the balance of its $[20] million to subscribe for shares in LJ Hooker Corporation;

on the basis that, out of the purchase price received by LJ Hooker Limited and the subscription moneys received by LJ Hooker Corporation:

(i) $8m is paid to ICG to reduce ICG debt to $30m;

(ii) any arrears in PAYG is paid (I assume this is statutorily required?);

(iii) all staff are retained and any arrears of entitlements/superannuation etc are paid;

(iv) all other creditors get cents in the dollar;

(v) any balance is available to fund business growth (including LJX operations).”

On 24 April 2020, Mr Hooker sent an email to Mr Michael Fuchs with the subject line “for your eyes only – LJ Hooker”, stating that this email was provided by way of “background” for a planned “chat Friday afternoon NYC [New York] time” (the “For Your Eyes Only” E****mail).
At this time, Mr Fuchs (who is the co-founder of a real estate investment and development company based in New York City, RFR Holdings LLC) held, through MF LJH LLC, in excess of 3m ordinary shares in Empireal Holdings.
The “For Your Eyes Only” Email was the subject of detailed submissions by both parties. It is accordingly necessary to set out its contents at some length, focussing on those passages which were the subject of cross-examination and oral address (emphasis added):

“I have assembled a good team for this reset.

The Olympus Story

Summary

Basically, the market turned soon after Olympus deal was closed, so instead of EB[IT]DA increasing as planned, the business has had less revenue. LJ Hooker still managed to increase EB[IT]DA from $13 m to $14.7 m TTM [trailing twelve months] to March 2020 through cost efficiencies but still short of what is required to refinance the current debt stack which Olympus's portion is Picking at a significant rate. It was a debt trap. There was hope of a refi[nance] in the second half of 2020 based on the early signs of a market recovery. Then COVID-19 hit which destroyed any hopes of market recovery or refi[nance] in 2020.

This was a double whammy for the group as LJX was set to close a $20 m raising in March 2020, which was to paydown $3.5 m of Olympus PIK [payment-in-kind] and $750K of interest. These have not been paid.

The flow on effects to LJHRES (franchising business) of LJX not getting funding significant. LJX has been contributing $3.2 m to LJHRES EB[IT]DA as a brand royalty, which has been counted in the $14.7 m EB[IT]DA to date, as approved by PWC the auditors. However if LJX is not funded, then LJHRES EB[IT]DA drops by $3.2 m on a TTM and also going forward. This will breach ICG (senior lender covenants) in LJHRES and put them as senior secured in the driving seat to reset the capital stack as they control the valuable asset. Olympus is left with second mortgage over LJHRES up the chain, and first mortgage over LJX which is still in start up mode, needing $16 m to breakeven in September 2021.

There is a potential argument that the LJHRES business is worth not much more than the value of the ICG senior loan, and LJX is worthless to anyone else.

If this argument can be made there is an opportunity is to reset the debt stack, namely Olympus.

Given ICG charge over the whole group which buys some time to keep funding LJX from LJHRES, keeping the whole group alive.

Option A —offer made to Olympus for cents in the dollar to walk [a]way and leave us to try an[d] create value. They get some warrants for upside.

Option B —we put the group into voluntary administration and work through that process. We are already getting advice from administrators to make sure we are prepared for this scenario if Olympus decide to play hard ball.

Background – this is the story we paint for Olympus

…

LJHRES

• LJHRES will require a cash injection of $2 million in June 2020 to remain solvent. ICG, to whom we will owe $2.1 million on June 30, have indicated they will be accommodating to keep their portfolio companies solvent so will likely provide a debt service holiday. We don't know what the terms of any debt servicing holiday will be at this stage. They are very busy with 30 other companies in their portfolio, many of them with no revenue at all.

• Assuming ICG are accommodating LJHRES should generate enough cash to maintain liquidity on a stand-alone basis however will not generate enough cash to continue funding LJX.

• Given the cash constraints our LJ Hooker direct agent model ‘Connect’ ramp up has been pushed back until we expect the market to recover next year.

LJX

• LJX breakeven is now pushed out to September 2021, and the business needs $16 million of capital to breakeven.

• In absence of additional capital in the short term LJX needs to continue to be funded by LJHRES, however the combined group will still have a $1.7 million funding gap in June 2020 increasing to $8 million from July 2020 to June 2021(excluding any debt servicing or repaying the LJX royalty fee balance). ICG can cut this off at any time.

• Hibernating the LJX business is not an option as all the exceptional talent would leave to other growth opportunities the high-performance agents who are independent contractors and the tech/engineering team who are being recruited hard by cashed up big tech like Atlassian.

The challenge for the Directors of LJX is that it is not a going concern without new capital, so it needs the [IWI] to come through or a white knight. The appointment of an administrator is likely.

If the Board decides to appoint an administrator, and Olympus does not appoint a receiver, the white knight has offered to fund the administrator until we figure out a plan for LJX in the coming months as we want to do the right thing by the 130 people it employs all currently on 60% salary since March. The business through 2019 forecast to burn $850 K per month.

If LJX does not receive this capital it will fold, and LJHRES loses $3.2 m of EBITDA—TTM and going forward. Currently TTM royalty has been accrued as approved by PWC auditors.

If TTM EB[IT]DA is reduced from $14.7 m to $11.5 m for the March 2020 Quarter LJHRES will breach the leverage covenant with ICG.

On the assumption that the market recovers to 2019 levels in the first half of 2021, LJHRES will have TTM EBITDA of $3.9 m and Run Rate EB[IT]DA $6.8 m. Based on this, the LJHRES business would be worth $35 m (TBC) based on global comparables. In April ICG wrote down their loan by 20% from $38 m to $30 m. The white knight has agreed to support the business on the following conditions:

1. The Olympus debt must be purchased, released or substantially restructured (precise mechanism to be determined) fo*[r] $X m- i.e. X% of $37 million ($41.5 m original principal less $4.5 m in interest paid to date = net face value $37 m). Outstanding balance with PIK [payment-in-kind] is $54 m.*

The white knight will provide funding to pay out Olympus on this basis. As part of this deal, Olympus may retain existing warrants or be issued additional warrants totalling (say) 5% of the fully diluted capital base of Empireal to provide some potential of recovering some additional capital over the long term (“Hope Note”). Based on the current uncertainty long term forecasts of the LJ Hooker group have not be[en] made.

2. Following COVID-19, the LJ Hooker offering to its franchisees will be reduced and simplified to more of a brand offering —initially resulting in less revenue with projected higher margins over the long run.

3. LJX won’t make royalty payments to LJHRES going forward. LJX revenue is currently 80% down month on month so the ongoing viability of this business will need to be assessed in the coming months. Either way it won’t be making the royalty payment to LJHRES and won't be able to pay the balance due.”

Several drafts of the “For Your Eyes Only” Email (or of parts thereof) were exchanged between Mr Hooker and Mr Weir before the email was sent to Mr Fuchs. At the bottom of one of those drafts, Mr Hooker inserted the following question: “Based on this why would Michael Fuchs pay anything for it. Future value?????”.

Project Cork Report prepared by KPMG

On around 27 April 2020, the LJ Hooker Group engaged KPMG, through Gilbert + Tobin, to provide a report which became known as the “Project Cork Report”. Each of Mr Heathcote and Mr Hooker had input into the preparation of the Report, after a “discussion draft” was circulated to each of them by KPMG on 29 April 2020.
On 30 April 2020, Mr Hooker sent an email to KPMG, requesting an “abbreviated version of the [Project Cork Report] in draft” in advance of a telephone call with Koi at 3pm the following day, and indicating that he “would like to review before the call…so we have time to edit if needed”.
On 1 May 2020 at 12:56pm, KPMG sent a further draft of the Project Cork Report to each of Mr Hooker, Mr Heathcote and Mr Weir, asking “which specific slides you would like extracted” prior to the document being provided to Koi.
On the same day at 2:35pm, Mr Hooker sent to Mr Agarwal and Ms Eng a document described as “Project Cork - Draft report excerpts 01.05.20 for Olympus”. It would have been apparent to Koi, from this description, that this document represented a selection of the slides from the full version of the Project Cork Report.
Mr Agarwal acknowledged in cross-examination that he reviewed “very carefully” the excerpts from the Project Cork Report which were provided to him, which were stated as being prepared for “Restructuring Advisory Assistance”. These included:
a slide setting out “key issues” facing the group. The issues which were designated as of “High” importance included:

(a) for the Technology Business, payment of LJX’s expenses, “particularly payroll”, the delayed investment from IWI, and the outstanding 2019 Repayment; and (b) for the Core Business, the collectability of the annual royalty fee of $3.2m which was payable by LJX to the Core Business for certain intellectual property, and the impact that this would have on the LJHRES Group’s EBITDA (and also, therefore, on compliance with financial covenants);

a slide headed “Financial position – review comments” which explained that KPMG had assessed the current financial position of each of the LJX Group and the LJHRES Group, and had prepared a “high level estimated outcome statement” on a “low case” (which assumed that the assets of each group are realised on a forced sale basis in the course of a voluntary administration) and on a “high case” (which assumed that assets of each group are realised on a going concern basis through voluntary administration”). This slide also noted that KPMG had undertaken “a high level review of cash flow forecasts for the LJX Group and the [LJH]RES Group provided by Management for FY2020 to FY2022”;
a number of slides headed “Financial position – estimated outcome” which indicated that:

(a) in respect of the LJHRES Group, the “Total assets available to secured creditors” were estimated to be $10.45m on a “low” case and $40.80m on a “high” case, and that the secured creditor (ICG) had a debt of $38m and there were total unsecured creditors of some $7.11m; and (b) in respect of the LJX Group, the “Total assets available to secured creditors” were estimated to be $1.03m on a “low” case and $3.18m on a “high” case, and that the secured creditor (Koi) had a debt of $54m and there were total unsecured creditors of some $30.10m;

two slides providing an “overview” of “High level activities” in a voluntary administration (the content of which was generic, and not specific to the LJHRES Group or the LJX Group); and
a slide headed “Options – indicative pricing”, which set out “a high level indicative professional cost estimate for a consensual restructure, as well as separate voluntary administrations for LJX Group and [LJH]RES Group (with and without concurrent receivership appointments)”.
Mr Agarwal agreed, in cross-examination, that it was plain from the document that KPMG was being asked to consider, at this time, the voluntary administration of each of the LJX Group and the LJHRES Group.
The slides which were omitted from the version of the Project Cork Report that was provided to Koi were as follows:
a slide setting out the “Scope Items” to be undertaken by KPMG pursuant to their Engagement Letter, which included:

(a) the current financial position of each of the relevant Group entities; (b) the current operations/trading of each of the relevant Group entities; (c) the various options available to the Group, including the nature and consequences of a voluntary administration or any external administration appointment; (d) any other issues relevant to the conduct of a potential voluntary administration appointment; and (e) the position with the Group’s lenders and assisting with communication with those lenders;

a slide headed “Options – suggested steps” which proposed, in the first instance, that the Group “request further time from secured creditors” (namely, ICG and Koi) to “[r]eforecast for the impact of COVID-19” and to “[a]ssess options for injection of equity”. This slide proposed that an assessment be undertaken of “the likely return to each lender under an orderly VA, to inform options for each lender” and proposed presenting to each lender “a bespoke solution which may include some combination of: Deferment of obligations; Debt-to-equity conversion; Debt haircut or debt sale at discount”. This slide also stated that “[b]ased on our high level review of the Group’s financial position, the preferred option is a consensual solution”;
a further slide which was also headed “Options – suggested steps” and which set out a “decision tree” in relation to “the high level options”, and noted that the “response from each lender will determine next steps regarding restructure options including a potential Voluntary Administration over some or all of the entities within the LJX Group or RES Group (or both)”. The “decision tree” was as follows:
slides showing the “standard timeline” and “strategy” for a possible voluntary administration, including an analysis of the benefits and disadvantages of a potential voluntary administration to the LJ Hooker Group. The “strategy” slide set out the following “Disadvantages” of appointing voluntary administrators “over some or all of the entities”:

“• A targeted appointment to LJX Group or holding companies is likely to result in defragmentation of stakeholder support

• Uncertainty around retention of franchisees

• Potential to destabilise trading operations

• Potential to destroy goodwill value

• Outcome cannot be predetermined

• Cost of process

• Secured lenders may appoint receiver

• Significant brand damage”

This slide concluded that, having regard to the above matters, “it is preferable that consensual restructure options are explored prior to the consideration of a Voluntary Administration.”

“X File” Email

On 3 May 2020, Mr Hooker sent an email to Mr Weir with the subject line “X File” (“X File**”** E****mail). This email was a focus of Empireal’s case and its text was the subject of detailed submissions. It is set out in full below (emphasis added):

“Immediate steps

1. Confirm status of the [IWI].

2. LJX requires funding in May – salaries of $250 K due May 14th (only option is cash from shareholders – Olympus [won’t] fund, LJHRES has been funding LJX to date

3. Agreed with Olympus that if shareholders don’t support LJX, then VA is the only path

4. Ask shareholders if they are willing to support LJX. Some shareholders might support LJX however only if debt stack is reset to a sustainable level – namely Olympus debt is taken out.

5. Shareholders knows LJX is valuable to the group, without it there is limited upside in LJHRES given the good talent which works across the group would leave, and the tech development of the platform would stop, leaving LJHRES a vulnerable business to being disrupted in the future, like the rest of the industry.

6. So now core security of Olympus is forced into play.

7. The hammer is without shareholder financial support for LJX, all of LJX, Empireal and LJHRES Holdings could be insolvent, so the Directors could put these companies into VA to save the group. VA starts the process of resetting the Olympus debt which was a pre-condition to Shareholders supporting funding LJX.

8. The LJHRES Directors need to sign a compliance certificate for ICG by May 15th.

Plan A – they [namely, Koi] are co-operative and get paid $5.3m ten cents (fourteen cents) in the dollar. Pay-out will likely get negotiated however that is the high case presented by KPMG.

Plan B - Olympus don’t accept the shareholders offer, then enter stages below:

1. Directors appoint administrators, KPMG, to put LJX and Empireal plus LJHRS Holdings into VA, simultaneously. This cuts the head off LJHRES group. Get same result as Plan A however less pay out for Olympus. Risks – someone else could buy the assets of LJX, someone else could by the shares of Empireal, negative press around VA could impact staff, agents and franchise owners – existing and future recruits.

2. Olympus appoints receivers to Empireal plus LJHRES Holdings, Directors appoint administrators, KPMG , to put LJHRS into VA, following ICG calling a default. Shareholders & Mgt work with ICG to cut the head off LJHRES group. Get same result as Plan A however no pay out for Olympus. Risks – someone else could buy the assets of LJX and LJHRES, negative press around VA of LJHRES would impact staff, agents and franchise owners – existing and future recruits.

Time Pressure

LJX will needs cash by May 13 to fund payroll so directors can put it in VA. Olympus won’t invest, we asked, so prepared to let it go, and in their IC eyes not really losing anything, as they never underwrote the credit of LJX at the time of the investment.

2. Empireal and LJHRES Holdings can both be put into VA too for being technically insolvent. The directors have a gun to their head, as shareholders wont fund LJX unless the Olympus debt is cleared. Good cop bad cop. Given these business don’t have the LJ Hooker name in them, there will be less fall out in media maybe. To test. By putting Empireal and LJHRES Holdings into VA, then the head is cut off the LJ Hooker [Group]**. Olympus ability to move is limited. The VA limits Olympus from changing the directors in these companies and most importantly in LJHRES which is in ICGs security net. So ICG is not dragged into the fight at this stage and the only valuable asset is out of Olympus reach. Meaning that all Olympus can do is sell the shares up the chain.

Directors of LJHRES need to provide a compliance certificate on May 15th for the March Quarter. LJHRES is compliant with ICG, however if LJX future is unsure then LJHRES would not be compliant as the LVR would increase from 2.49 to 3.3 x (threshold is 2.5 x). ICG would not call event of default however reserve rights to do so depending on where LJX ends up. Loaded gun of a default. This limits the ability for Olympus to sell the shares up the chain or sell their debt to someone else.

Olympus reactions

• Initial reaction is to buy time (6 months) to raise capital. Based on the pathway about there is time pressure to get a result now.

• According to Olympus management their LPs are now in charge of the investment. This means they will deal with it clinically, not emotionally.

• Sell the debt to someone else – unlikely given the short time frame to act 12 days before LJX and Empireal (plus LJHRES Holdings) are put into VA, and LJHRES is technically in default by ICG. At any time ICG could call it and appoint their own VA process, do a DOCA, which could leave those Olympus shares worthless. They have KPMG report suggested debt is worth $5.3 m max, so likely have to share that report with any buyer on likely valuations.

• Sell the business – all business they have security over will be put under voluntary administration – best likely result in DOCA’s which play into shareholders hands.

• Olympus Appoint Receivers which over ride voluntary administrators.

• LJX – sell the assets – few million at best. Its only worth something to the existing shareholders and LJHRES.

• Empireal and LJHRES Holdings - they cannot get to the LJHRES asset group. Can only sell shares up the chain. ICG in tech default so could call it and appoint their own VA process, do a DOCA, which could leave those shares worthless.”

Empireal submitted that the “X File” Email, when read with the “For Your Eyes Only” Email, revealed a plan, orchestrated by Mr Hooker, to “confect a story that each of Empireal, LJHRES Holdings and LJH RES was insolvent so that Koi would accept a nominal amount by way of repayment on its Loan”. I address these matters below when dealing with Empireal’s claims against Mr Hooker.

IWI investment fails to proceed – “delinking” proposal by Mr Agarwal

On 5 May 2020, IWI decided not to proceed with their proposed investment into the LJ Hooker Group. Mr Hooker forwarded IWI’s correspondence to Mr Agarwal and Ms Eng on the evening of 5 May 2020 and stated he will be “busy tonight with London and New York to get some shareholder support for LJX” (this likely being a reference to Mr Fuchs).
On 6 May 2020, a telephone call occurred between Mr Agarwal and Mr Hooker, during which Mr Hooker informed Mr Agarwal that Mr Fuchs was considering investing in the LJ Hooker Group.
In the following days, Mr Agarwal and Mr Hooker exchanged a number of WhatsApp messages in relation to Mr Fuchs’ potential investment in the LJ Hooker Group. In particular, on 8 May 2020, the following exchange took place:

Mr Hooker: “Nitish I just spoke to Michael. Some progress. He asked a bunch of questions, said he needed to think about it more and would call me back over the weekend. You will be the first to know when I hear from him again. Janusz”

Mr Agarwal: “Thanks for the update. Let’s see what he comes back with. Fingers crossed!”

On 11 May 2020, another telephone call took place, this time between Mr Agarwal, Ms Eng, Mr Weir and Mr Hooker. In this call, Mr Agarwal put forward what was referred to in submissions as a “delinking” proposal. In his evidence, Mr Agarwal described the “delinking” proposal in the following terms:

“I would not remember what exactly the words or phrases [were] used, but I think what I said was that we would be prepared to make changes to the loan structure for the guarantee structure for loan, so that we can delink the core business from the technology business even if there was no equity coming into the technology business. And I think, again, as part of the discretion, we would have also ‑ I think I would have mentioned that if, for any reason, the future of the technology business goes into VA, then I think at least to the structure, we can preserve the core business.”

Mr Hooker recalled that Mr Agarwal proposed, around this time, “delinking some of the LJX entities” and that, although they had discussions “about a couple of structures”, “his delinking one was sort of the best outcome that he could come up with”.

Two versions of the 13 May 2020 Gilbert + Tobin Advice

On 13 May 2020, at 1:45pm and 2:04pm respectively, Mr Peter Bowden, a partner at Gilbert + Tobin (the solicitors for the LJ Hooker Group), sent two versions of an email with the subject line “LJX – Empireal” to Mr Hooker, copied to Mr Weir.
Other than some insignificant differences in line and paragraph breaks, the only substantive difference between the two emails concerned a single statement regarding the effect of an insolvency event in respect of any of the LJX entities on the Koi Facility. I have shown this change below by italicising the portion of the 1:45pm email which was removed in the 2:04pm email, and setting out in bold the corresponding statement that was inserted in the 2:04pm version (for ease of reading, I have adopted the line and paragraph breaks in the 2:04pm version):

“Further to our call this morning, we set out below some considerations regarding the Olympus debt and consequences for Empireal. This is in the context of a voluntary administrator appointment over the LJX entities (if this eventuates).

As you know, Empireal is a guarantor of the Olympus facilities. Any insolvency event in respect of any of the LJX entities would trigger a default under the Olympus facility which would entitle Olympus to (relevantly), by notice, accelerate all outstanding amounts and make a demand on Empireal for the payment of all such amounts under the Empireal guarantee [2:04pm: which would enliven the payment obligation under the Empireal guarantee].

The liabilities under the guarantee would be thereafter immediately due and payable.

This entity also has some other smaller liabilities relating to administrative matters. On the basis that this entity has no capacity to repay any of these amounts (even if Empireal were to exercise its rights of contribution from co-guarantors of the Olympus debt), the directors would likely form the view that it is insolvent or likely to become insolvent.

Only if Olympus wrote its entire debt off and/or released its guarantee and security would there be the potential for this entity to avoid insolvency (despite the “other” liabilities referred to above remaining in place). Accordingly, even if Olympus was to extend date for repayment of the amounts owing under the guarantee liability, it is unlikely to impact the directors’ views on insolvency.

It is worth noting that an administrator appointment at Empireal would also create difficulties for the ICG facilities. This is because it’s subsidiaries are borrowers / obligors under this facility. By way of example, if:

- Sponsors cease to control Empireal; or

- Empireal ceases to control LJH RES Ltd (the borrower under the ICG facility),

a mandatory prepayment event is triggered under the ICG facility.

Please let us know if you have any further questions or comments.”

As set out above, the 1:45pm version of the email stated that an insolvency event in respect of the LJX entities would trigger a default, which would entitle Koi to issue a notice to Empireal, accelerating all outstanding amounts under the Koi Facility and demanding payment under the Empireal guarantee, while the 2:04pm version stated that such a default “would enliven the payment obligation under the Empireal guarantee” (without any reference to the issue of a notice or demand).
On the same day at 3:12pm, Mr Hooker forwarded to Mr Agarwal, copied to Mr Weir, the 2:04pm version of the email from Gilbert + Tobin, stating: “As discussed please see the formal advice from G&T below”. (The reference to a “discussion” appears to be a reference to a video call between Mr Hooker and Mr Agarwal that was arranged for 2pm on 13 May 2020 – that is, around the time that the second version of the email from Mr Bowden was sent to Mr Hooker.)
There was extensive cross-examination of Mr Hooker regarding the circumstances in which there came to be two versions of this email. I address below the parties’ submissions on this issue.

Telephone call between Mr Agarwal, Mr Fuchs and Mr Weir

In his email to Mr Agarwal which forwarded the 2:04pm version of the Gilbert + Tobin advice, Mr Hooker referred to a planned telephone call later that evening between Mr Agarwal, Mr Weir and Mr Fuchs: “Good luck tonight, Bryan [Weir] will introduce you both, Michael [Fuchs] will likely start talking, and Bryan will jump in to help the discussion if needed”. It is apparent from the terms of Mr Hooker’s email, that prior to this time, Mr Fuchs had not spoken directly to Mr Agarwal.
This call took place, as planned, later on the same day. Mr Hooker did not participate in the call. Mr Agarwal gave the following unchallenged evidence regarding his discussion with Mr Fuchs (emphasis added):

“I recall Mr Fuchs asking what our plans were, meaning Olympus’ plans. I recall telling Mr Fuchs that we wanted to see what the shareholders could do for the business, and that if he as a shareholder stepped up, we would step up too and be supportive by making changes to the [Koi Facility]. I told Mr Fuchs that we were open to him putting money into LJX as part of the business’ overall growth strategy but our focus was on the core business. By focus, I meant that Koi’s main interest was in the performance of the core business in line with our underwriting. I recall Mr Fuchs stating he would need some time to come back to us.”

Shortly after that call, Mr Hooker sent a WhatsApp message to Mr Agarwal which thanked Mr Agarwal for speaking with Mr Fuchs and stated that Mr Weir had reported that “the call was positive and you came across well”. Mr Hooker also indicated in the WhatsApp message that he planned to contact Mr Fuchs the following day.
On the same day as the discussion between Mr Agarwal and Mr Fuchs, Ms Eng of Koi sent an email to Mr Borrelli of Borrelli Walsh, asking him to conduct a conflict check and seeking to arrange a call with him. Mr Agarwal agreed in cross-examination that these requests were made as “part of the preparation” for the enforcement of Koi’s security.

“Consensual sale” proposal and further advice from Gilbert + Tobin

On around 17 May 2020, Mr Agarwal proposed to Mr Hooker that Koi and the LJ Hooker Group undertake a consensual sale of the whole of the LJ Hooker business (that is, both the Core Business and the Technology Business).
Mr Agarwal gave the following unchallenged evidence regarding this “consensual sale” proposal:

“I spoke with Mr Hooker later that day [that is, on 17 May 2020]. During that call, I proposed that Olympus and Mr Hooker undertake a joint sale process to find a buyer for 100% of the equity of the whole of the LJ Hooker business, being the technology and core business together. I indicated that I considered it likely that the process would take approximately three months and proposed that, if Mr Hooker agreed to commit to the process, Olympus would fund the operating costs of the technology business (including salaries) until it was completed. I made this proposal to Mr Hooker having obtained approval from the [Olympus] IC to do so.”

On 18 May 2020 at 10:09pm, Mr Bowden sent an email to Mr Hooker and Mr Weir, setting out Gilbert + Tobin’s advice on the question “whether … it would be open to the directors to entertain the Olympus proposal or whether doing so would put them at risk of breaching their duties” (18 May Advice). This email stated as follows:

“Last week, you advised us that the directors of LJX had received an offer of financial support from Michael Fuchs, a major shareholder of the LJ Hooker and LJX groups. We understood that, while not yet documented, Mr Fuchs’ offer was attractive in that it offered immediate cash funding to the LJX group (to meet operating costs until breakeven) and included underwriting some of the group’s other liabilities going forward. We further understood that Mr Fuchs’ offer was conditional upon him being able to reach agreement with Olympus in relation to their debt but that, provided that condition was satisfied, the directors of LJX had a relatively high degree of confidence that Mr Fuchs would (if his offer was accepted) deliver the funding and underwriting he has offered.

You have now advised us that, over the weekend, Olympus proposed that the directors of the LJX and LJ Hooker entities undertake a sale process to find a buyer for the entire LJ Hooker and LJX groups. We understand that Olympus has indicated that the process would take approximately 3 months and that, if the directors agreed to commit to the process, Olympus would consider funding the LJX operating costs until competed.

You have asked us whether, in the circumstances, it would be open to the directors to entertain the Olympus proposal or whether doing so would put them at risk of breaching their duties.

As previously advised, the directors of LJX and its subsidiaries are currently in a precarious position. The Maori [IWI] transaction, which would have recapitalised LJX and secured its financial position in the medium term, collapsed over a month ago and the LJX group’s financial position has only deteriorated since then. Given its cash flows, assets and liabilities, it is difficult to see how, in the absence of a substantial investment offer, the directors can resist appointing an administrator in the near term.

In relation to the Olympus proposal to, as above, undertake a sale process, we understand from our discussions with you:

1. Mr Fuchs is likely to withdraw his offer of support if he believes the LJX group intends on running a sale process.

2. In the opinion of the directors, a sale process in the current economic environment is going to be very challenging as the group had advisors running dual capital raising processes last year (in more favorable economic conditions) and both were unsuccessful.

3. The sale process is likely to become public, causing brand and business damage (adversely affecting value).

4. There is no certainty that Olympus will agree to fund the LJX group to the extent necessary to secure its solvency during the sale process and no guarantee of any ongoing funding if the sale process is unsuccessful.

5. Any debt funding by Olympus during the process will only add to the group’s liabilities – to the detriment of other stakeholders.

6. The LJX and LJ Hooker auditors may form the view that LJX is not a going concern as at 30 June 2020, resulting in the ICG covenants being breached and an event of default under the ICG facility being triggered.

7. If the sale process is unsuccessful, which appears likely, LJX will be in a significantly worse position at its conclusion.

In our view, based on the information you have provided, acceding to the Olympus proposal will involve significant risks for the directors and both LJX and LJ Hooker corporate groups with limited prospects of a positive outcome.

The directors should be mindful of their duties to the companies. As you know, directors owe duties to their companies to ensure that, amongst other things, they act with due care and diligence and in good faith. Directors also have a duty to prevent insolvent trading. As a company nears insolvency, the interests of the company include the interests of its creditors. As you know, the Michael Fuchs offer is the only offer on the table and comes at a time when the prior existing offer (from the Maori [IWI]) has been withdrawn and no other related parties are prepared to invest. Continuing to trade the business without unlimited financial support, which we understand is not presently available, as above, is likely to give rise to material risks for the directors.

Bearing each of these issues in mind, based on the facts at hand, it would seem unlikely that, should the Michael Fuchs offer lapse or be withdrawn, the directors can continue to trade without significant risk.”

Empireal submitted that Mr Bowden’s advice was given on the basis of an instruction that “the directors of LJX had received an offer of financial support from Michael Fuchs”, and that this instruction was incorrect, with the result that the 18 May Advice was of little consequence. I address this issue below when dealing with Empireal’s claims regarding the directors’ decision to place Empireal, LJHRES Holdings and LJH RES into voluntary administration.
Mr Hooker forwarded Mr Bowden’s advice to Mr Agarwal at 9:47am on 19 May 2020, following a video call between them that morning. Mr Agarwal responded as follows: “We had a good talk today morning. Together we can overcome the situation…”.
On the following day, 20 May 2020, Ms Eng sent an email to the members of the Olympus IC which stated that Koi had “reached out to a few restructuring and insolvency firms in anticipation of potential enforcement actions on Project Landmark [that is, the LJ Hooker Group]”. Ms Eng attached an engagement letter for Borrelli Walsh and noted that, upon engagement, this firm would “complete a work plan” and would “get … up to speed on the transaction, propose the next steps for [Koi] to consider and be ready to act within short notice as required”. Ms Eng noted that these steps would cost around $20,000 to $25,000, and stated as follows: “Given the fast-moving situation and the various stakeholders’ involvement in the deal, we would recommend engaging BW [Borrelli Walsh] and request them to start with the review and work plan as soon as possible.” Ms Eng requested that the Olympus IC members provide their sign-off for the engagement of Borrelli Walsh.
Mr Agarwal acknowledged, when taken to this email in cross-examination, that Koi was actively preparing for enforcement of its security at this time, and that there was a sense of urgency about being ready to enforce.

Analysis of Restructuring Options

On Sunday, 24 May 2020, Mr Hooker sent an email to Mr Bowden and Mr Robert Trowbridge, another partner at Gilbert + Tobin, and to Mr Weir, requesting a telephone call for 4pm that day. Mr Hooker stated that Mr Trowbridge was required on the call “as what we are going to make a Decision on has serious implications”. The meeting took place at 4:05pm that afternoon.
Mr Hooker arranged a further telephone call at 8pm on the same day with Mr Bowden and with Mr Ryan Eagle of KPMG. In arranging this call, Mr Hooker indicated that he wanted to arrange this call “so I can speak to London” (Mr Hooker gave evidence that “London” was a reference to Mr Fuchs.)
It appears that the planned discussion with Mr Fuchs went ahead. At around 10:56pm on the same evening, Mr Hooker sent an email to Mr Trowbridge and Mr Bowden which stated as follows:

“Green light from Michael Fuchs on our discussion this evening.

Let’s regroup in the morning before hitting up ICG.”

In cross examination, Mr Hooker gave the following evidence in respect of this email:

“Q. If we look at the top of page 4232, ‘Green light from Michael Fuchs on our discussion this evening. Let's regroup in the morning before hitting up ICG’. You see that?

A. Yes.

Q. You agree with me now that 24 May 2020 was when Mr Fuchs gave a green light to the restructure to cut off the head. Correct?

A. I'm not sure. I can't recall what the green light was from. So it could have been from maybe that could be many things, what the green light was from Michael from, but you know, it's in that email. But I don't know what I meant by the green light from Michael Fuchs. Clearly, it's a go on something.”

It is likely that the “green light” was Mr Fuchs’ approval to commence negotiations with ICG regarding a proposed restructure of the LJ Hooker Group. In the 24 May 2020 email which contains the reference to a “green light”, Mr Hooker refers to a plan to “regroup in the morning before hitting up ICG”. It is common ground that, by 25 May 2020 (that is, the day after the “green light” email), Mr Hooker had commenced negotiations with ICG in respect of a possible restructuring support deed (FASOC [35], Defence at [35]).
On 25 May 2020, Mr Hooker sent an email to Mr Bowden, Mr Trowbridge and Mr Weir, attaching a PowerPoint presentation titled “Restructure Steps 1 + 2”. This presentation included the following slides:
Although these slides are labelled “Step 1” and “Step 2”, they show two distinct options for restructuring the LJ Hooker Group, rather than two steps which were to be implemented as part of the one restructuring option.
The first slide labelled “Step 1” depicts a restructure in which a company associated with Mr Fuchs and Mr Hooker becomes the holding company of LJH RES, and thereby gains ownership of the Core Business. As part of this restructure, it was proposed that an amount of $5m be paid to ICG in return for its agreement to reset the loan terms, with the balance of the ICG Facility reducing from $38m to $33m.
The second slide labelled “Step 2” depicts a restructure in which an entity associated with Mr Fuchs (shown as “MF Financing”) becomes the holding company of Ausreal and thereby gains ownership of the Technology Business. As part of this restructure, it was proposed that Ausreal buy LJH RES (and thereby obtain ownership of the Core Business) for a sum that was to be determined.
Each of the first and second slides show a large red “X” through Empireal Holdings and its subsidiaries. The subsidiaries of Empireal Holdings included Empireal and LJHRES Holdings. (A later version of this document which was circulated by Mr Hooker included a key showing that the red “X” meant that the entities in question were “liquidated”.)
The “Step 2” slide refers to a payment being made to Koi, in an amount to be determined: “Ausreal pays Olympus $x m, in return for dropping the guarantee from LJX and retiring their loan”. There is no corresponding statement on the “Step 1” slide.
The LJ Hooker Group did not proceed with the restructuring option shown on the “Step 2” slide. In an email sent late on the evening of 24 May 2020 (that is, after the various phone calls between Mr Hooker and the Group’s advisors), Mr Trowbridge informed Mr Hooker that Ausreal’s liability to Koi was not limited to the shares held by Ausreal in LJX and, accordingly, even after Koi had exhausted its security over those shares (and related rights) in LJX, Koi would still be able to pursue Ausreal for the balance of the loan. Mr Trowbridge advised: “In light of the above, I favour the acquisition structure where the purchaser [of the Core Business] is not Ausreal or its subsidiaries”.

“The word doc is the beginning of a checklist we want to start fleshing out with you. Use that to create a timeline.

Let me know when you have some time to walk through this. I want to make sure we list all the activities and who does what, and do all the prep work before pulling the VA trigger.”

The revised Restructure Steps presentation again set out a proposed “Step 1” and “Step 2” (again, being distinct options). This version of the presentation included a slide which indicated that, in respect of the “Step 2” option, it was intended that there be a negotiation with Koi, with the following offer being put:

“Ausreal funded by Michael Fuchs makes a[n] offer to KPMG for Olympus to release guarantee and extinguish their loan for $3.0 m which is the high end of the range from KPMG. The offer would also include a hope note top up payable in the future to sweeten the deal.”

The Word document referred to in Mr Hooker’s email, which was headed “Steps Involved for LJHRES Group”, set out a number of steps “to be done before any Administration”, as follows:
“Confirm Structure Details”;
“Incorporate Bidco” (with it being noted that this entity would be “100% owned by Janusz [Mr Hooker] (Australian resident therefore no FIRB [Foreign Investment Review Board])” and that Mr Fuchs, who was not an Australian resident, “can be a director”);
“Set up MF [Mr Fuchs’] funding” (with queries as to whether this would be “a convertible loan with conversion subject to FIRB approval” or a “straight loan” and, if so, whether it would be secured over Mr Hooker’s shares);
“Set up ICG Arrangements” (with “Draft Loan Amendment documents to be prepared”);
“Set up Bidco Offer” (with there being reference to the need to “[c]onfirm Bidco is purchasing LJHRES shares from LJHRES Holdings for $5.0 million, with ICG debt and security remaining in place”);
“Communications Plan” (including consideration being given to a “Press Release” and “Messaging to Olympus [Koi]”); and
“Timetable” (that is, “Prepare timetable for implementation”).
On 27 May 2020, at around 4:30pm, Mr Hooker sent a further version of the PowerPoint presentation, which stated, in respect of LJH RES, that the “Janusz Hooker & Michael Fuchs Bid Co” would acquire 100% of the shares held by LJHRES Holdings in LJH RES for $1.
Later that evening, at 9:31pm, Mr Hooker sent “updated restructure charts” to Mr Bowden and Mr Trowbridge, and to Mr Mark O’Reilly of PricewaterhouseCoopers (PwC). These charts distinguished between the proposed restructure of the LJHRES Group and the proposed restructure of the LJX Group, as follows:
The proposed restructure of the LJHRES Group in this PowerPoint presentation involved:
Mr Fuchs providing $5m to the holding company of the BidCo;
the BidCo (which was to be an entity associated with Mr Hooker and Mr Fuchs) becoming the owner of 100% of the shares in LJH RES, by purchasing all of LJHRES Holdings’ shares in LJH RES for $1, and LJH RES issuing $5m of new shares to BidCo; and
the amount of $5m then being paid by LJH RES to Olympus.
The green shading of the box relating to LJHRES indicated that it was proposed that the purchase of LJH RES’s shares by BidCo occur at a time when LJH RES was in voluntary administration. Further, the use of green boxes and red crosses in both of these slides indicated that it was proposed that each of Empireal Holdings, Empireal, LJHRES Holdings and LJX Holdings be placed into voluntary administration and then into liquidation.

Mr Hooker: “Nitish I have not pressed Michael [Fuchs] since sending the analysis we worked on. He said he would get back to me this week. Will keep you posted.”

Mr Agarwal: “Thanks Janusz for the update. Fingers crossed!”

On 1 June 2020 at around 4:30pm, Mr Trowbridge emailed a document headed “Project Cork – Timetable and Implementation Checklist” to Mr Hooker and Mr Weir, noting that the attached document “does not address LJX (though that process will be similar to Project Cork, so we can roll out a similar checklist in short order)”.
The attached document referred to a restructure of the LJHRES Group involving:

“(a) the acquisition of all the equity interests in LJHRES held by LJHRES Holdings … by Leslie Janusz Hooker (via a special purpose vehicle established / dormant entity presently controlled by him (L. J. Hooker Investments Pty. Limited ACN 088 227 650), being BidCo); and

(b) a capital injection to LJHRES made by a key existing shareholder [Mr Fuchs] under a convertible note issued by the direct holding company of BidCo, HoldCo…”

The company described as “BidCo” (namely, L.J. Hooker Investments Pty Limited) was wholly owned by Mr Hooker. On 5 June 2020, another entity was incorporated, L**.J.** Hooker Holdings Pty Ltd, which was also wholly owned by Mr Hooker, and which was to fulfil the role of the “HoldCo” referred to in this document.
The document presented two options. Option 1 was described as a “consensual restructure”, and Option 2 was described as “restructure via voluntary administration”. Both options resulted in BidCo acquiring all the shares in LJH RES for $1. The “consent” involved in Option 1 was the consent of ICG, rather than Koi. It was noted, in respect of Option 1, that the purchase by BidCo was dependent on “ICG consent to Proposed Transaction (including agreed ICG term sheet)”. Option 2 commenced with voluntary administrators being appointed to each of Empireal, LJHRES Holdings and LJH RES by their respective boards (which is what in fact subsequently occurred). Neither Option 1 nor Option 2 referred to any amount being paid to either Empireal or Koi.
As noted above, this document was addressing the restructure of the LJHRES Group, not the restructure of LJX Group. On 1 June 2020 at 7:05pm, Mr Hooker sent an email to Mr Trowbridge and Mr Weir, describing the document prepared by Gilbert + Tobin as “solid”, and stating as follows (emphasis added):

“As you pointed out we will need a similar version for LJX albeit there will be more haggling time with Olympus. The [nuance] will be that the Administrator will need to be funded to cover payroll – funds will need to be in the account by Friday 12th June as there is not sufficient cash in the business to cover it. [Mr Fuchs] can do that if a deal has been struck with Olympus, [or if] not then Olympus needs to fund or, if neither it goes into liquidation which does not help anyone.

I have a call with IGC [ICG] at 10 am so following that I hope to have some clarity on their timing for their IC so we know when to push the VA button this week.”

Further steps in preparation for restructure

As set out in paragraph [126] above, three of the steps which Mr Hooker had identified as being required “to be done before any Administration” were as follows:
“Set up MF [Mr Fuchs’] funding” (including the terms of any convertible notes);
“Set up ICG Arrangements” (with “Draft Loan Amendment documents to be prepared”); and
a “Communications Plan” (including consideration being given to a “Press Release”).
Steps were taken in relation to each of these matters in early June 2020.
On 1 June 2020, Mr Weir and Mr Trowbridge provided comments to Mr Hooker on a draft Convertible Note Agreement, which was to be provided to Mr Fuchs. A further draft was circulated on the following day.
On 2 June 2020, Mr Hooker sent a text message to Mr Weir, which stated as follows:

“Call me when you are up. Michael [Fuchs] is in for $10 m. Wants 10% return on the new $10 m, plus capital back on what he has invested into the company prior - $6 m. So what we have presented i[s] pretty good”

On 2 June 2020, Mr Trowbridge sent to ICG and its solicitors, Allens, a first draft of an offer letter and term sheet by which ICG would give its consent to the proposed restructuring transaction, whereby L.J. Hooker Investments would purchase all of the shares in LJH RES from LJHRES Holdings and would, immediately upon acquisition, subscribe for further shares in LJH RES, with the subscription moneys being paid to ICG.
On 3 June 2020, Gilbert + Tobin sent Mr Hooker and Mr Weir a draft letter of offer which was addressed to Mr Eagle of KPMG as administrator of LJHRES Holdings and LJH RES, and which made a binding offer for L.J. Hooker Investments to acquire all of the shares in LJH RES for $1.00, and to subscribe for 5m ordinary shares in LJH RES for $5m, for the purposes of effecting a repayment of $5m in respect of the ICG Facility. Gilbert + Tobin noted that “this document is subject to ICG and its lawyers review”. (A version of this draft letter was sent by Gilbert + Tobin to Allens on the following day.)
Also on 3 June 2020, Mr Hooker sent an email to Ms Sarah Dickson, with the subject line “PR”. Ms Dickson was the head of public relations and marketing at the LJ Hooker Group. Mr Hooker’s email stated as follows (emphasis added):

“• We are going early — doing this now — by october there will be a lot of co[mpanie]s in VA etc.

• 5 x Non LJ Hooker branded holding companies are placed into VA.

• Meaning the operating companies: 5 x LJ Hooker Avnu subs[idiaries] of LJX and LJ Hooker Corporation and all the LJ Hooker subs[idiaries] below are NOT put into VA.

• It might take a few days for media to pick it up as the companies in VA are not branded LJ Hooker.

• Time for LJHRES in VA will be relatively short.

• Public Message is:

• Reset the capital stack to a more sustainable single lender structure

• Taking out a hand full of useless holding companies

• No change or impact to operating entities — staff and strategy retained

• Strengthen balance sheet for a stronger business for longer term growth — streamlined.

• Receiving a capital injection from Michael Fuchs — long term shareholder — New York real-estate mogul (billionaire)

• When emerge from VA there is no change of control of all companies — namely founding Hooker family, L. Janusz Hooker still in control

Brand Risk

• The entities going into VA are holding companies that do not have the LJ Hooker name in them.

• A very limited time in VA

• PR strategy will be handled by Mark Rudder

• L. Janusz Hooker still in control

Operational Risk

• No operating entities placed in VA

• There is sufficient cash in the business for BAU [business as usual] operations

• No change or impact to operating entities — staff and strategy retained

Creditor Risk

• No creditors other than Olympus being asked to take a haircut including ATO and Staff.”

On 3 June 2020, Mr Hooker sent a text message to Mr Weir stating as follows: “Bryan so go into VA at 10am give OLYMPUS until 4pm the next day to respond”.

The Restructuring Support Deed is negotiated

On 5 June 2020, Allens sent to Gilbert + Tobin a draft of the proposed amended terms for the ICG Facility following the restructure. Further drafts were circulated over the following days.
Also on 5 June 2020, Allens sent Gilbert + Tobin a draft Restructuring Support Deed. The parties to this agreement were ICG and L.J. Hooker Investments (that is, BidCo).
On 7 June 2020 at 11:04am, Gilbert + Tobin provided a marked-up version of this draft to Mr Weir, Mr Hooker and Mr Heathcote for their review, prior to the document being sent to Allens. Clause 4 of this draft was headed “Support for the Restructuring” and provided as follows (in the clean version, with Gilbert + Tobin’s mark-up incorporated and underlined):

“Until the End Date:

(a) the parties shall promptly take all actions reasonably required to implement the Restructuring or which are reasonably requested by another party to this Deed to take in connection with the Restructuring, but solely to the extent such action is not inconsistent with the Term Sheet or this Deed, including (without limitation) the following:

(i) supporting, facilitating, implementing or otherwise giving effect to the Restructuring;

(ii) executing any document and giving any notice, order, instruction or direction required in accordance with the Term Sheet which is necessary to support, facilitate, implement or otherwise give effect to the Restructuring;

(iii) working in good faith to agree a public statement regarding the parties' support for the Restructuring; and

(iv) subject to the provisions of this Deed, preparing, executing and delivering the Restructuring Documents to which it is required to be a party;

(b) the Lender shall attend (either itself or by proxy) the first and second creditors' meetings in respect of the Appointment and subject to BidCo’s compliance with this Deed, vote in favour of the Deed of Company Arrangement at the second creditors’ meetings; and

(c) the Lender shall not vote for or commit to any alternative restructuring or refinancing that is inconsistent with this Deed or the Term Sheet.”

Mr Hooker responded at 11:59am on the same day, with the following request: “Can we expand [clause] 4c so its exclusive to bid co… would not want to set this up and someone else walks into our position”. Mr Bowden responded as follows later that afternoon:

“We think clause 4(c) is OK in this respect. However, we could amend it as follows:

the Lender shall not vote for or commit to any alternative restructuring or refinancing that is either: 1) inconsistent with this Deed or the Term Sheet; or 2) proposed by an entity that is not BidCo.

Please let us know if this works. Otherwise, we would like to send this to Allens this evening.”

Mr Hooker responded soon afterwards confirming that the proposed amended form of cl 4(c) should be inserted. This change was made and the revised draft was then sent to Allens. The form of cl 4(c) that was approved by Mr Hooker was incorporated into the executed form of the Restructuring Support Deed.
On 8 June 2020, approval was given by ICG’s investment committee for the planned restructure of the LJ Hooker Group. Mr Hooker sent a text message to Mr Weir at 8:23pm that day, informing him of this approval, as follows: “Icg just got Ic approval – one step closer”.

Entities placed into voluntary administration

On the morning of 10 June 2020, there was a series of meetings of the board of directors of each of Empireal, LJHRES Holdings, LJH RES, LJX and LJX Holdings. These meetings were also attended by Mr Bowden.
At those meetings, resolutions were passed in the following terms (VA Resolutions) in respect of each of Empireal, LJHRES Holdings, LJH RES, LJX and LJX Holdings:

“RESOLVED that in the opinion of the directors voting for the resolution, the Company is insolvent or likely to become insolvent due to the reasons discussed at the meeting.

RESOLVED that administrators should be appointed to the Company under section 436A of the Corporations Act 2001 (Cth).

RESOLVED that subject to, and with effect from the time of, receipt by the Company of the Consent duly executed by each of Ryan Reginald Eagle, Phil Quinlan and Amanda Coneyworth, the following be appointed as joint and several administrators of the Company:

(a) Ryan Reginald Eagle;

(b) Phil Quinlan; and

(c) Amanda Coneyworth.

RESOLVED that all necessary actions, including the lodgement of an ASIC Form 505 be taken to reflect the appointment of administrators.”

The only document tabled at each meeting was the consent of the relevant KPMG personnel to act as administrators of the relevant entities.
According to the respective minutes of those meetings, which were signed by Mr Hooker, each meeting took place by telephone, and was around two minutes in duration, as follows:
the meeting of the board of Empireal (Mr Hooker, Mr Weir and Mr Heathcote) was held at 8.50am;
the meeting of the board of LJHRES Holdings (Mr Hooker, Mr Weir and Mr Heathcote) was held at 8:52am;
the meeting of the board of LJH RES (Mr Hooker, Mr Weir and Mr Heathcote) was held at 8:54am;
the meeting of the board of LJX (Mr Hooker and Mr Weir) was held at 8:56am; and
the meeting of the board of LJX Holdings (Mr Hooker and Mr Weir) was held at 8:58am.
The VA Resolutions in respect of each company record, as set out above, that the directors were of the opinion that the company was, or was likely to become, insolvent, “due to the reasons discussed at the meeting”.
At 1:38pm on the same day, Mr Hooker sent Mr Weir an email with the subject line “Reasons for VA”. The body of this email commenced with the statement “Reasons of putting the various entities into VA for minutes” and proceeded to set out various matters grouped under three headings “Empireal, LJX Holdings & LJHRES Holdings into VA”, “LJHRES into VA” and “LJX into VA”. At 1:58pm, Mr Weir forwarded this email to Mr Bowden, stating as follows:

“See below rationale for VA for various companies for inclusion in the minutes. Nothing directly relates to LJHRES Holdings but with its holding company [Empireal] and its subsidiary [LJH RES] both in VA and as a guarantor of ICG debt I assume we don’t need to say more?”

Several further drafts of this statement of “Reasons for VA” were exchanged between Mr Weir, Mr Hooker and Mr Heathcote on 11 and 12 June 2020. Mr Hooker, in sending the penultimate version to his fellow directors, Mr Heathcote and Mr Weir, on 12 June 2020 at 12:16pm, made the following request: “Please read and verify you[’re] happy with this, as they are board minute details people will go over later.” Mr Hooker was plainly aware that the basis on which the directors formed their opinion as to insolvency and passed the VA Resolutions was likely to be closely scrutinised.
This document (which I will refer to as the “Reasons” Document) commenced with a “General Overview of Financial Position – both LJX and LJHRES Groups” that referred to three main matters.
The first was the inability of LJX Holdings to pay the 2019 Repayment, or the outstanding interest that was payable to Koi pursuant to the Koi Facility. The total amount said to be due and payable to Koi was around $5m. It was further stated that “LJX Holdings has no way of remedying its failure” to pay the amounts due to Koi, or the amounts which it owed to LJH RES.
The second was the failure of the proposed IWI capital raising. It was stated that, after IWI pulled out, the prospect of raising replacement capital was limited by the impact of the COVID-19 pandemic.
The third was the reduction in LJH RES’s EBITDA. This was said to be a consequence of the impacts of COVID-19 (with “ongoing deterioration in franchise fees”), additional employee expenses, and the likely need to impair the amounts recorded in LJH RES’s accounts as owing by LJX. It was noted that, as a result, there was a default in respect of the leverage ratios specified in each of the ICG Facility and the Koi Facility, and “there is no prospect of refinancing”.
Approximately two hours later, Mr Heathcote sent a revised version of the “Reasons” Document with changes marked up. This version of the “Reasons” Document was sent by Mr Weir to Gilbert + Tobin on 12 June 2020 at 2:34pm.
In that revised version of the “Reasons” Document, the following comments are set out in respect of each of the five entities that was the subject of the VA Resolutions on 10 June 2020 (with the tracked changes by Mr Heathcote, as set out below):

| LJX Holdings Pty Ltd | | As borrower under the Olympus Facility, LJX Holdings is in arrears to Olympus in an amount of $54.9 million with further $7600k due on 30 June. It has no way of paying the $7600k interest due on 30 June, remedying the current arrears or meeting future interest payments. Nor does it have any realistic prospect of repaying or refinancing the principal amount. | | LJX Pty Ltd | | As guarantor under the Olympus Facility, LJX is liable to remedy the LJX Holdings defaults. It also has a $1 million tax liability and payroll tax debt of c$50k due end of June, and is also liable for the accrued payments due to LJHRES group totalling $121 million by the end of June 2020. Without the IPG investment or a significant capital injection, it cannot meet these payments. | | It has no source of income other than payments from its subsidiaries, which have been reduced to such an extent that it cannot meet salary payment obligations due on Friday 12 June 2020. The amount required to meet LJX salaries on that day is approximately $340k | | Empireal Limited | | As guarantor under the Olympus Facility, Empireal is liable to remedy the LJX Holdings defaults and to repay the Olympus debt. It has no income and, in the absence of surplus cash being generated by LJHRES (and remitted via LJHRES Holdings) it has no prospects of meeting its financial obligations to Olympus. | | LJHRES Limited | | LJHRES’s operating subsidiaries have experienced a significant reduction in operating cashflow and are forecasting further reductions. In addition, the impairment of accrued payments due from LJX will result in a significant write down in EBITDA, placing LJHRES in default of its borrowing ratios under the ICG facility. LJHRES has no reasonable prospect of remedying its default. LJHRES is required to make a payment of principal and interest to ICG totalling c$2.31 million on 30 June 2020 and owes the ATO approximately $33.8 million under a payment plan which expires on 30 June 2020. It does not have the funds to make either payment. LJHRES will also be unable to pay the September 2020 interest payment to ICG of $550k. In addition, there is payroll tax debt due on 7 July 2020 of c$600k | | LJHRES Holdings | | LJHRES Holdings is a guarantor of the ICG Facility. The borrower under the ICG Facility (LJHRES) is insolvent. LJHRES’ holding company, Empireal Limited, is also insolvent. LJHRES Holdings has no source of income or capital other than through one of these entities. With both insolvent, LJHRES Holdings has no prospect of meeting its obligations under its guarantee. |

There was a dispute between the parties as to whether the matters in the “Reasons” Document represented the “genuine” reasons of Mr Hooker and his fellow directors for the passing of the VA Resolutions. This issue is addressed below, when dealing with Empireal’s claims regarding those resolutions.

Communications between Mr Hooker and Mr Agarwal following VA Resolutions

On 10 June 2020, shortly after the VA Resolutions were passed, Mr Hooker and Mr Weir had a telephone call with Mr Agarwal.
This telephone call was recorded by Mr Agarwal. Both the recording and a transcript of the recording were in evidence.
There was no evidence that Mr Agarwal informed Mr Hooker and Mr Weir that the call was being recorded, or obtained their consent to this occurring. Senior Counsel for Mr Hooker did not submit that this conduct by Mr Agarwal, who was located in Singapore at the time of the call, contravened any law, but did submit that Mr Agarwal’s conduct was “underhanded”. Empireal also made credit submissions against Mr Hooker based on this telephone call, alleging that he made a number of knowingly false statements. In this section of the reasons for judgment, I set out the key elements of the conversation that were the focus of the parties’ submissions. I deal separately below with the issue of whether particular statements in that conversation were false or misleading, and the parties’ respective submissions on credit.
At the commencement of the telephone call, Mr Weir informed Mr Agarwal that administrators were being appointed to Empireal, LJHRES Holdings, LJH RES, LJX Holdings and LJX. Mr Hooker stated that no appointments were being made to any companies which included the “Hooker” name, “because … we think we can minimise the PR and brand damage if they don’t have the Hooker name in it”.
Mr Hooker and Mr Weir then made the following statements regarding the circumstances which had led to the appointment of administrators:

“[Mr Hooker]: …so basically, Michael [Fuchs] told us this morning that, um, he’s not going to be able to make an offer to Olympus that’s going to be able to make that whole on the principal, um, he’s done the analysis all last week – weekend, with his guys and pulled us apart and basically said the exposure is significantly more than he originally anticipated. He’s saying that really, he’s going to have to assume the ICG debt whether it’s now or later this year (or part of it), but, and then he said, with LJX you know, off 50% over the last two months of your reforecast, he said the cash hole is just gonna be way more than you guys expect. So we spent – for that this morning trying to work stuff out with the lawyers, but basically... um… you know…

[Mr Weir]: Nitish bottom line is we’ve got payroll on Friday, and, and as of right now, we can’t meet it. So we – we’re gonna have another go at um, at Michael [Fuchs] when he wakes up…

[Mr Hooker]: …but last night, I mean this morning, when we spoke with him he just says, “Look you’ve gotta, gotta do that” and then, it was late his time and he was pretty shitty. Uh but he said you gotta do that and uh, legally we've gotta do it. And he said, we’ll deal with it, in, in, I’ll speak to you tomorrow, we’ll deal with it in VA. And then sort of basically just hung up.”

Mr Hooker then made statements to Mr Agarwal that this was “not the outcome that I wanted”, and that “[h]opefully I can salvage something”.
Mr Agarwal responded that, on the appointment of administrators, Koi would have “no choice but to appoint a receiver”, and queried whether ICG would also appoint a receiver, which would lead to matters then taking “a different route altogether”.
Mr Agarwal then referred to the “consensual sale” proposal which he had previously raised with Mr Hooker:

“So, the option that we were looking at earlier, I don’t know whether we still have time to do it or not right? Where we said we can provide interim funding and we can run a sale process without putting companies into VA. Because putting into VA obviously taints the asset, right? You would rather do the sale untainted rather than tainted. But at that time we didn’t get much support from you guys, which we thought was actually a pretty good option.”

Mr Weir responded that there were “issues” with this proposal “which we haven’t been able to deal with”, and that “there comes a point where as directors we have to face reality and that’s where we’re at”.
Mr Agarwal also raised once again the option of “de-linking” (which had been raised by him in the previous month, see [94] above), such that only the LJX Group was placed into voluntary administration:

“…and one more thing, I think, again, we can look at is, I think whether you only put the technology companies into VA, or you also want to take it to the Empireal side and the LJH RES side. I think earlier the GT [Gilbert + Tobin] analysis was that it’s because of the, the security provider that LJX is providing to the Empireal facility. That is where the linkage is. And that is why, I think if you do VA, then you have to link it to the other companies as well. And I don’t know if it would be helpful, then, we can actually try and de-link the two so that you take – you do VA on LJX and LJX Holdings, but you can keep the Empireal and LJH RES leg of things uh, without the VA.”

Mr Weir responded that “the advice we’ve got” on the “de-linking” proposal “is pretty clear, unfortunately”.
Mr Agarwal urged that there be another discussion with Gilbert + Tobin to see whether, by making some change to the guarantees or security providers, it would be possible to “de-link the … two sub-groups” (namely, the LJX Group and the LJHRES Group) such that only one sub-group enters voluntary administration, with the other continuing “without impacting the directors’ liability”. Mr Weir responded that ICG would likely have a view on this proposal because there was “a whole lot of … revenue that they realise at the moment, which will disappear” (upon the LJX Group entering administration) and “they know that”. Mr Agarwal stated that, if ICG determined that there was an event of default under the ICG Facility, then the directors could put the LJHRES Group into voluntary administration at that point in time, but otherwise it “should be possible to at least let those companies continue”.
Mr Agarwal added that: “We have not accelerated, and unless ICG accelerates, then I think it should be okay. If ICG accelerates then obviously you can put it to VA at that point in time”. This led to the following exchange:

“[Mr Hooker]: Well we have to have a conversation with ICG. So, we wanted to call you first.

[Mr Agarwal]: Right.

[Mr Hooker]: ‘Cause they’ve been asking what’s happening with LJX and Michael [Fuchs], so I think, um –

[Mr Agarwal]: So I think you should be open with them. I think you should tell them that this is what it is. I think it looks like as far as the technology platform is concerned, I think that is going to VA. I don’t think there’s… there’s no money for the payroll, right, that is coming up in two days’ time. And I think, even – uh, so I think that, I think we should take it as a given and then see is there a way by which we can control the damage, without having an impact on the directors’ liability. And, our sense is it’s actually it’s an option worth exploring. We wanted to actually discuss it earlier but I think it looked like Michael Fuchs is quite keen and so on and, it looked to us that you are not keen to, to entertain anything else until you are done with Michael Fuchs. So we actually did not bring it up earlier.

[Mr Weir]: Alright, we’ll, we’ll, well I guess we’ll have a discussion with ICG.

[Mr Agarwal]: I think you can have a discussion with ICG but I would also encourage, I think if you can speak with GT [Gilbert + Tobin]. I think if you want, we can also speak with GT, and I think we can explain what we are thinking about it and maybe I think we can have an exchange of ideas and their concerns and see if the concerns can be addressed, and if they can be adequately addressed then obviously we can go a different route. If they can’t be addressed, then we anyway go whatever route we are looking at, right? So, I don’t think that, that takes away anything, but it can just put some more options on the table.”

Mr Hooker agreed to “make some phone calls”.
At 1:34pm on the same day, Mr Agarwal sent Mr Hooker a text message asking when Koi could have a telephone call with Gilbert + Tobin, and stating that: “We may be able to save Empireal and the other two companies [LJHRES Holdings and LJH RES] from VA by removing LJX companies from our structure”. This was apparently a reference to the “de-linking” proposal that he had raised in their earlier telephone call (see paragraph [172] above).
Later that afternoon, Mr Hooker sent a text message and an email to Mr Agarwal, stating that he had spoken to Mr Fuchs “re your suggestion” and asking Mr Agarwal to telephone him.
There was another telephone conversation between Mr Hooker and Mr Agarwal on 10 June 2020, in which a further proposal was made by Mr Agarwal. Mr Hooker summarised this proposal in an email which he sent to Mr Agarwal at 9:30pm, following their discussion:

“Confirming my understanding of the offer you would like Michael [Fuchs] to consider to release LJX from Olympus security.

MF [Michael Fuchs] total investment = A$15 m

1. $10 m invested into LJX to repay part of the receivables due to LJHRES. The $10 m in LJHRES is used to cover part of the current liabilities in LJHRES totalling $40 m +.

$5 m paid directly Olympus. The loan to Empireal remains in place less $5 million from the balance.”

Mr Agarwal responded at 9:56pm, confirming that Mr Hooker’s understanding of the offer was correct, and stating that:

“The $10m in LJHRES will be used to make up the payment due to the marketing fund, ATO payment and IGC [ICG] payments due in June end. We can finalize what we will do with the balance funds, including payment of cash interest that has been past due on our loan.”

Mr Hooker forwarded Mr Agarwal’s email to Mr Fuchs shortly afterwards, commenting as follows:

“Nitish [Mr Agarwal] came up with a great idea in his email below that we can use any excess funds from the deal he proposed this afternoon to repay their overdue interest!!!!! Good one.”

Events on 11 June 2020

Entry into the Restructuring Support Deed

On 11 June 2020, L.J. Hooker Investments and ICG entered into the Restructuring Support Deed. Mr Hooker executed this document on behalf of L.J. Hooker Investments. The document was entered prior to administrators being appointed to Empireal, LJHRES Holdings, LJH RES, LJX Holdings and LJX, which occurred later on the same day.
Clause 1.1 of the Restructuring Support Deed defined the “Restructuring” as including “the transfer by LJHRES Holdings of all shares held by it in [LJH RES] to [L.J. Hooker Investments]”.
Pursuant to cl 3.1(c), the parties agreed that the Restructuring was to be implemented by L.J. Hooker Investments submitting, within 7 days of the appointment of administrators to LJH RES and LJHRES Holdings, a letter of offer for the Restructuring to the administrators, including the proposed DOCA terms; and by ICG agreeing to vote in favour of the DOCA proposal at the second creditors’ meetings of LJHRES Holdings and LJH RES.
Clause 4(c) of the Restructuring Support Deed was in the form that had been proposed by Gilbert + Tobin, on Mr Hooker’s instructions (see paragraphs [149]-[150] above), and provided that ICG would not vote for or commit to any alternative restructuring which was inconsistent with the Deed or the attached DOCA term sheet, or which was proposed by any entity other than L.J. Hooker Investments.
Clause 5(a) of the Restructuring Support Deed provided that ICG was only permitted to assign, or transfer, or create any trust of, its rights, title, interest or benefits in the Secured Debt (being the funds advanced pursuant to the ICG Facility) or in the Restructuring Support Deed in favour of any person, if that person “delivers to [L.J. Hooker Investments] a counterpart of the Restructuring Accession Deed by which it agrees to accede to [the Restructuring Support Deed], which is duly executed by [ICG] and the acquirer”.
Schedule 1 to the Restructuring Support Deed comprised a term sheet for L.J. Hooker Investments’ DOCA proposal. It was a term of the DOCA proposal that any claims which LJHRES Holdings had against its directors or former directors or any of its subsidiaries would be “released, discharged and extinguished”. The DOCA term sheet attached another term sheet setting out amendments to the ICG Facility (which, among other things, had the effect of removing the financial covenant which required there to be a specified ratio of Net Debt to EBITDA).

Appointment of Administrators and Ausreal offer

Later on 11 June 2020, Mr Hooker and Mr Weir signed instruments of appointment of administrators, thereby appointing Mr Eagle, Mr Phil Quinlan and Ms Amanda Coneyworth of KPMG as Administrators of each of Empireal, LJHRES Holdings, LJH RES, LJX Holdings and LJX (Appointment Entities). At 1:42pm, Mr Eagle sent an email to Mr Agarwal, notifying him of the Administrators’ appointment.
On 11 June 2020 at 3:12pm, Mr Hooker sent, as director of Ausreal, an offer to the Administrators to pay Koi an amount of $2 million (which, Mr Hooker noted, Mr Fuchs had agreed to fund) on condition that Koi:

(a) released Ausreal, LJX, LJHA and Hooker Capital from their guarantees and any securities granted by them in relation to the Koi Facility; and (b) procured (or permitted) LJX Holdings to release Hooker Capital, Ausreal, LJX and its subsidiaries from any obligations any of them may have to repay any moneys owing to LJX Holdings.

Mr Hooker stated that: “For the avoidance of doubt, it is not intended that the obligations of LJX Holdings and Empireal Limited under the [Koi Facility] be affected by these arrangements”. Mr Hooker further noted that, if Koi were to accept the offer by 12pm on the following day, then Mr Fuchs would be prepared to provide funding to enable LJX to pay the wages due to its employees on that day.
The Administrators forwarded Ausreal’s offer to Mr Agarwal for Koi’s consideration.

Koi issues Notice of Default

On 11 June 2020 at 8:25pm, Mr Hooker sent an email to Mr Agarwal in which he confirmed that ICG did not intend to appoint a receiver following the Administrators’ appointment.
On 11 June 2020 at 11:47pm, Koi sent a Notice of Default and Demand for Payment to LJX Holdings (which was the borrower under the Koi Facility); and at 11:50pm, Koi issued a Notice of Demand to each of the Guarantors under the Koi Facility (including Empireal Holdings, Empireal and LJX). Those notices demanded that the borrower and guarantors render the immediate payment of the amount outstanding under the Koi Facility, the total amount of such moneys being some $56.163m.

Events leading up to First Meetings of Creditors

On 12 June 2020, Mr Hooker sent, on behalf of L.J. Hooker Investments, an offer to the Administrators of LJHRES Holdings and of LJH RES. The elements of the offer included (consistently with the terms of the Restructuring Support Deed) that L.J. Hooker Investments would acquire all of the shares in LJH RES that were held by LJHRES Holdings for $1.00; that L.J. Hooker Investments would subscribe for 5m shares in LJH RES at a subscription price of $1.00 each, with the subscription proceeds of $5m being paid to ICG; and that ICG would release LJHRES Holdings in full from its obligations under the ICG Facility. This offer annexed the proposed terms of the DOCA in order to give effect to this restructuring arrangement (L**.J.** Hooker Investments DOCA Proposal).
On 15 June 2020, the Administrators sent their first circular to creditors of the Appointment Entities. The first meetings of creditors were scheduled for 23 June 2020 at 11:00am. The circular also noted that the second meetings of creditors would be held on or before 16 July 2020, unless this date was extended by the Court.
On 19 June 2020, Baker McKenzie issued a notice of the appointment of Receivers and Managers to the assets of LJX Holdings, Empireal Holdings, Empireal, LJHA, Ausreal, Hooker Capital, and Mr Hooker, pursuant to the securities granted in connection with the Koi Facility (see paragraph [25(4)] above). Mr Borelli was one of the Receivers so appointed.
On 22 June 2020, Baker McKenzie sent to the Administrators (a) proofs of debt lodged by Koi in the administrations of each of Empireal, LJX Holdings, and LJX, and (b) a proof of debt lodged by the Receivers of Empireal in the administration of LJH RES. On the same day, the Administrators’ solicitors, Gadens, responded by letter to Baker McKenzie, stating that the Administrators’ preliminary view was that the proof of debt lodged by the Receivers of Empireal in the administration of LJH RES should not be admitted for voting purposes. Gadens explained that, according to the Administrators’ investigations, there was no intercompany loan from Empireal to LJH RES, and that the asserted amount claimed in respect of such a loan ($27.855m) in fact related to Empireal having subscribed for 27,855,020 RP Shares in LJH RES on 13 December 2017 (see paragraphs [38]-[39] above). Gadens noted that the RP Shares were “in the nature of equity, and not debt”.
On 23 June 2020, the first meetings of creditors of the Appointment Entities were held. The minutes record that Mr Eagle stated that “the directors’ reason for the Companies’ failure was due to undercapitalisation and poor economic conditions”, and noted that the Administrators had received the L.J. Hooker Investments DOCA Proposal. Mr Borrelli asked whether the Administrators had received any other expressions of interest in addition to the L.J. Hooker Investments DOCA Proposal, and Mr Eagle responded that that the Administrators had received a few expressions of interest from “financial parties” and “a competitor of the Companies”.

Establishment of various MF LJH entities and dealings between Mr Hooker and Mr Fuchs

On 22 June 2020, the following entities were incorporated:
MF LJH (Nominees) Pty Ltd;
MF LJH Holdings Pty Ltd; and
MF LJH Investment.
At all times since its incorporation, MF LJH Nominees has had one share on issue, which has been held by Mr Mark Langan. It is common ground that, since 23 June 2020, this share has been held on trust for Mr Hooker.
MF LJH Nominees holds all of the issued shares in MF LJH Holdings. As at 20 June 2020, MF LJH Holdings held all of the shares in MF LJH Investment. (As noted below, another entity, MF LJH MidCo Pty Ltd, was subsequently interposed between MF LJH Holdings and MF LJH Investment.)
The directors of each of MF LJH Holdings and MF LJH Investment have been, since 29 June 2020, Mr Hooker and Mr Fuchs.
On 22 June 2020, Mr Hooker sent an email to Mr Trowbridge and Mr Bowden, informing them of the incorporation of these entities, and describing MF LJH Holdings as the “updated holdco” and MF LJH Investment as the “updated … bidco” for the purposes of the proposed restructuring of the LJ Hooker Group.
A Deed of Amendment and Novation was prepared, and was subsequently executed by ICG, L.J. Hooker Investments and MF LJH Investment on 1 July 2020. The effect of this deed was that MF LJH Investment assumed all of the rights and obligations of L.J. Hooker Investments under the Restructuring Support Deed, which otherwise remained fully effective.
On 25 June 2020, MF Australia Capital LLC was incorporated in Delaware, United States.
On 29 June 2020, Mr Hooker sent an email to Mr Richard Froom of RFR Holdings LLC (this being Mr Fuchs’ company, see paragraph [79] above), attaching the “key bid documents” which were for “MF [Mr Fuchs] to sign”. Mr Hooker provided the following commentary on these documents (emphasis added):

“1. The Deed of Company Arrangement (DOCA) is what get[s] voted on by ICG (senior lender) at the final creditors meeting next week. Once approved the deal is set.

2. Offer Letter is submitted to the administrator, KPMG, who is running the process.

3. Restructuring Support Deed is the exclusive deal we have set with ICG to deal with us.

4. LJH Debt Term sheet is the terms of the existing I[CG] debt approved by their IC [Investment Committee]

5. Deed of Novation is simply passing on the previous offer we made to KPMG a few weeks back, transferring that with revisions to the new MF LJH branded structure where I am hidden to avoid antagonizing Olympus.

6. MF Equity Commitment Letter and Equity Term Sheet covers the proposed $30 m investment – there are plenty of outs and this won’t be documented for a few months.

7. MF LJH Convertible Note is the instrument Michael [Fuchs] makes his initial $5m investment with another $5m at a later stage TBC [to be confirmed]. If all goes to plan the $5 m will need to [be] wired to our lawyers escrow account at the end of this week.

8. Revised structure chart – we are buying the company below LJHRES, called LJ Hooker Limited as it was a cleaner break from Olympus.”

Further DOCA Proposals submitted

On 30 June 2020 at 11:54pm, Gilbert + Tobin sent to the Administrators an offer from MF LJH Investment, which attached a DOCA Term Sheet signed by Mr Fuchs and Mr Hooker (MF LJH Investment DOCA Proposal). Other than the fact that MF LJH Investment had been substituted for L.J. Hooker Investments, the offer was substantially the same as previously made in the L.J. Hooker Investments DOCA Proposal.
Also on 30 June 2020, Koi submitted its first DOCA proposal in respect of Empireal, LJHRES Holdings and LJH RES. Koi’s proposal involved a special purpose vehicle (BidCo) providing a contribution sufficient to pay the secured and unsecured creditors of LJHRES Holdings and LJH RES in full, and the unsecured creditors of Empireal in full, with BidCo acquiring the shares in LJHRES Holdings.
On 2 July 2020 at 8:05pm, Mr Hooker sent an email to Mr Michael Astarita of RFR Holdings LLC, stating as follows (emphasis added):

“KPMG have just confirmed they will issue their report recommending our DOCA in the next 12 hours. They have rejected the other offers for a number of reasons the key reasons being the other offers were conditional on ICG support (we locked ICG into an exclusive to vote for us at the Creditors Meeting) and conditional on the support of the franchise network (Michael’s Co-Director on MF LJH Investment Pty Ltd (BidCo) is the Chief of the LJ Hooker Franchise Network, plus my endorsement of the MF bid [being the MF LJH Investment DOCA Proposal] as founding family and group chairman). We will however keep our guard up and a healthy level of paranoia for the next week until the Second and Final Creditors Meeting.”

Convertible Loan Agreement and Side Letter

On 2 July 2020, a Convertible Loan Agreement was executed by MF Australia Capital (as Lender) and by MF LJH Holdings (as Borrower). The “Background” section of this document stated that MF Australia Capital had agreed to make a cash advance to MF LJH Holdings, “in consideration for which [MF LJH Holdings] has agreed (at [MF Australia Capital’s] option) to repay the amount owing under this agreement with interest or to convert such amount into convertible preference shares in [MF LJH Holdings]”. The Convertible Loan Agreement provided for MF Australia Capital to make, on certain conditions, two advances of $5m each. The first was to be used to subscribe for $5m of new shares in LJH RES, and the second was to be used “in supporting the capital restructure of the broader LJ Hooker Group”. MF LJH Holdings agreed that, on the Repayment Date (namely, 30 June 2022), it would repay the amounts advanced, plus interest on those amounts from the date of the advances, plus a “Repayment Premium” of $7m.
Clause 6 of the Convertible Loan Agreement provided as follows:

“(a) The Lender [MF Australia Capital] may, by notice in writing to the Borrower (a Conversion Notice) served at any time on or prior to the Exercise Date [30 June 2022], elect to convert all (but not less than all) of the Principal Amount into CPS [Convertible Preferred Shares issued by MF LJH Holdings] on the Exercise Date in accordance with this clause.

(b) By serving a Conversion Notice, the Lender will be deemed, subject to clause 7:

(i) to have applied for the issue, on the Exercise Date, of the number of CPS calculated in accordance with the Conversion Formula (or such other number of CPS as the parties may in writing agree), and

(ii) to have agreed that, following the issue of the CPS applied for, it will be bound by the Constitution of the Borrower [MF LJH Holdings].

(c) Subject to clause 7, following receipt of a Conversion Notice, the Borrower will, on the Exercise Date or as soon as practicable thereafter, apply the Principal Amount towards the Lender’s subscription for CPS at the Exercise Price and issue such CPS to the Lender.

(d) Upon the issue of CPS to the Lender under this clause, the Principal Amount will be deemed repaid in full.”

The Conversion Formula and Exercise Price were set out in an Annexure to the Convertible Loan Agreement. Clauses 4(b) and 5(b) provided that interest and the Repayment Premium were not payable in the event that the Principal Amount was converted to CP Shares in accordance with cl 6.
On the same day as the Convertible Loan Agreement was executed, Mr Fuchs signed a side letter dated 30 June 2020 which was sent to him by Mr Hooker (Side Letter). The Side Letter “set out arrangements between [Mr Fuchs and Mr Hooker] which are not reflected in the [Convertible Loan Agreement] or documented elsewhere”. In particular, it provided, among other things, that:
regardless of the Conversion Formula set out in the Convertible Loan Agreement, if MF Australia Capital exercised its conversion rights under the Convertible Loan Agreement, it would be issued the number of Series A CP Shares which would result in MF Australia Capital owning 49.9% of the voting shares in MF LJH Holdings;
Mr Hooker would own the other 50.1% of the voting shares in MF LJH Holdings; and
in respect of any potential additional funding required:

(a) it was uncertain how much capital would be required to achieve an overall settlement with Olympus and to fund LJX operations, and the amount required may exceed the Principal Sum of $10m that was anticipated in the Convertible Loan Agreement; and (b) if MF Australia Capital agreed to provide any additional funding required to achieve an overall settlement, it would be provided through the Convertible Loan Agreement with the Principal Sum being increased as required and the preferred dividend payable on the Series A CP Shares being correspondingly increased.

Events leading up to the Second Creditors’ Meeting

On 3 July 2020, the Administrators issued their report in respect of LJH RES and LJHRES Holdings. The Report stated as follows:

“We have received two DOCA proposals; however, the administrators consider that only one proposal (received from MFLJH [MF LJH Holdings]) is capable of acceptance by creditors, and implementation, within an appropriate timeframe having regard to preserving the value in the underlying business.

We have provided ICG with copies of each DOCA proposal. The administrators have been informed by ICG that it is supportive of the offer made by MFLJH.”

On 6 July 2020, Mr Agarwal sent an email to several ICG personnel, informing them that Koi had “the approvals and the funds to fully buy out ICG debt at LJH”, and could “complete the transaction this week”. Mr Agarwal sought an opportunity to “discuss this further”.
On 7 July 2020, Koi’s solicitors, Baker McKenzie, sent a follow-up email to ICG’s solicitors, repeating the statements made in Mr Agarwal’s email and requesting ICG’s response to “Koi’s proposal to purchase the senior loan”. Allens responded on the following day, stating as follows:

“In order for ICG to transfer its debt to a third party, pursuant to existing contractual arrangements [namely, the Restructuring Support Deed], it would be necessary for that third party to sign up arrangements pursuant to which it would agree to support the deed of company arrangement that has been proposed by MF LJH Investment Pty Ltd (details of the proposed deed are set out in the VAs' report to creditors and would result in certain amendments being made to the facility agreement).

Before ICG considers entering into discussions with [Koi] in relation to a transfer of the debt, could you let us know if that (i.e. the requirement to agree to support the proposed DOCA) presents a threshold issue for your client?”

This correspondence was forwarded to Mr Agarwal, who stated in email correspondence sent on 8 July 2020 that Koi should “disengage with ICG”, expressing frustration that “ICG and the family [that is, Mr Hooker] have been acting in concert on a scheme that will take away the value from the mezz[anine] lenders” and that the voluntary administration process was “a farce with a pre-determined outcome”. On 9 July 2020, Baker McKenzie informed Allens that Koi was not interested in discussing the purchase of ICG’s debt on terms which would require it to support the MF LJH Investment DOCA Proposal.
On 9 July 2020, the Administrators issued their report in respect of Empireal and LJX Holdings. The report described these two companies as “holding entities which did not trade any business”.
On 12 July 2020, the Receivers of Empireal submitted a formal proof of debt in the administrations of each of LJH RES and LJHRES Holdings. Each of the proofs claimed that an amount of $39.83m was payable to Empireal, comprising an amount of $27.855m that was loaned to LJH RES, together with interest (and allowing for certain adjustments). The proof lodged in respect of LJHRES Holdings appeared to claim that this amount was payable by way of equitable compensation, by reason of LJHRES Holdings’ involvement in the transfer of 27.855m RP Shares in LJH RES from Empireal to LJHRES Holdings on 5 June 2020, which was said to have occurred in breach of the duties owed to Empireal by its directors. (It should be noted that, in the present proceeding, there is no contention that there was any wrongdoing involved in the transfer of these shares to LJHRES Holdings on 5 June 2020.)
On 13 July 2020, Gadens sent a letter to Baker McKenzie which:
rejected Empireal’s proof of debt in the administration of LJH RES, insofar as it was based on the asserted existence of an intercompany loan, for the reasons given in the letter of 22 June 2020 (see paragraph [197] above); and
provided a response to the claim that the transfer of the RP Shares to LJHRES Holdings involved a breach of director’s duties, and indicated that the Administrators intended to mark Empireal’s proof of debt in the administration of LJHRES Holdings as objected to, and to permit Empireal to vote for $1 for voting purposes.
On 13 July 2020, the second meetings of creditors in relation to LJH RES and LJHRES Holdings were adjourned. On 14 July 2020, Gadens sent an email to Gilbert + Tobin, which stated that the Administrators intended to issue a supplementary report to creditors on 17 July 2020 outlining the DOCA proposals that had been received, and that the parties’ final and best proposals would be due for submission by 5pm on 16 July 2020.
On 16 July 2020, Koi submitted a revised DOCA Proposal in respect of Empireal, LJHRES Holdings and LJH RES (Revised Koi DOCA Proposal). This proposal involved, among other things, around $40m being contributed to repay the debt owing under the ICG Facility of some $37.975m, with the balance being used to pay the Administrators’ costs and to discharge debts owed to the ATO. On the same day, Koi provided a letter to the Administrators which stated that it currently had some US$26.675m cash available to be used for investments and that it had the ability to call for additional capital to increase the available cash amount to US$28m (being approximately A$40m).

Redemption of RP Shares held by LJHRES Holdings for $1.00

It was a term of the Final MF LJH DOCA Proposal that the steps to be taken in order to implement the proposed restructure of the LJ Hooker Group included that:

“the redemption of RPS [defined as ‘all redeemable preference shares in the capital of LJHRES on issue at the date of Completion’] will take effect by way of LJHRES issuing 1 ordinary share in the capital of RPS to LJHRES Holdings in consideration of redemption, the effect of which will be the cancellation of the RPS.”

On 8 August 2020, each of the LJH RES DOCA and the LJHRES Holdings DOCA was executed.
Clause 5.1(a)-(b) of the LJHRES Holdings DOCA provided as follows:

“(a) During the Deed Period, the Directors and Officers of the Company must not perform or exercise, and must not purport to perform or exercise, a function or power as a Director or Officer of the Company, expect [sic] where prior consent and approval has been given to the Director or Officer by the Deed Administrators (including pursuant to clause 5.1(b) and clause 12.1).

(b) The Deed Administrators authorise the Directors of the Company to cause the Company to enter into the Transaction Documents to which it is party, and any documents to which it is a party which are referred to in, or contemplated by, a Transaction Document, including passing all relevant resolutions and signing all relevant documentation and forms required for the Company’s entry into such Transaction Documents.”

The “Transaction Documents” which the directors of LJHRES Holdings (including Mr Hooker) were authorised, by cl 5.1(b), to execute were defined as including “the RPS Redemption Documents”. The terms “RPS” and “RPS Redemption Documents” were defined as follows:

“RPS means all redeemable preference shares in the capital of LJHRES on issue immediately prior to the date on which the completion step in clause 4.2(a) is satisfied.

RPS Redemption Documents means:

(a) the board resolution for the Company for a waiver and amendment to the RPS terms of issue;

(b) the consent from the Company to LJHRES for a waiver and amendment to the RPS terms of issue;

(c) the board resolution for LJHRES approving redemption and service of redemption notice on the Company; and

(d) the redemption notice from LJHRES to the Company.”

Clause 2.3(a)(i) of the LJHRES Holdings DOCA provided that it was a condition precedent of Completion that the Deed Administrators receive written confirmation that each Transaction Document (and, therefore, each of the RPS Redemption Documents) had been duly executed.
There were similar provisions in the LJH RES DOCA: see cll 1.1 (definitions of “RPS”, “RPS Redemption Documents” and “Transaction Documents”), 2.3(a) and 5.1(a)-(b).
On the same day as these DOCAs were executed:
Mr Hooker, as director of LJH RES, executed a “Redemption Notice – Redeemable Preference Shares” addressed to LJHRES Holdings, whereby LJH RES:

(a) gave notice to LJHRES Holdings that, in accordance with cl 4 of the terms of issue of the RP Shares, all of those shares will be redeemed on Completion as defined in the LJH RES DOCA; and (b) advised that the aggregate redemption amount in respect of all of the RP Shares is $1.00, “such amount to be satisfied by the issue to [LJHRES Holdings] on redemption of 1 ordinary share in [LJH RES] paid up at $1.00”;

Mr Hooker and Mr Weir executed a deed poll entitled “Consent to amendment and waiver of RPS Terms” which provided that LJHRES Holdings gave “consent to the redemption of the Redeemable Preference Shares on the Proposed Redemption Terms”, being the redemption of the RP Shares by LJH RES, on less than 5 Business Days’ notice, for an aggregate amount of $1.00 (RP Shares Consent Deed);
Mr Hooker and Mr Weir attended, by telephone, a meeting of the directors of LJHRES Holdings, at which they resolved to ratify the amendment of the terms of the RP Shares so as to permit the redemption of the RP Shares in LJH RES for $1.00 (RP Shares Resolution); and
Mr Hooker and Mr Weir attended, by telephone, a meeting of the directors of LJH RES, at which they resolved to ratify the amendment of the terms of the RP Shares, to redeem the RP Shares for $1.00, and to issue one ordinary share to LJHRES Holdings for $1.00 in consideration of the redemption.
The share register of LJH RES records that the redemption of the RP Shares occurred on 8 August 2020.

Consequences of the Restructure

As a consequence of the restructure which was implemented after the LJH RES DOCA and the LJHRES Holdings DOCA were executed, the LJ Hooker Group structure was as follows:

(a) MF LJH Nominees (which was beneficially owned by Mr Hooker, see paragraph [200] above) held 100% of the issued shares in MF LJH Holdings; (b) MF LJH Holdings held 99.99% of the issued shares in MF LJH MidCo, with Mr Weir holding one issued share in MF LJH MidCo; (c) MF LJH MidCo held 100% of the issued shares in MF LJH Investment; (d) MF LJH Investment held 100% of the issued shares in LJ Hooker Ltd and LJH RES; and (e) LJ Hooker Ltd held 100% of the issued shares in LJ Hooker Corporation, which wholly owned six subsidiaries (these being the entities which operated the Core Business).

2021 Option Agreement

On 22 September 2021, MF Australia Capital (as Lender) and MF LJH Holdings (as Borrower) entered into a Loan & Equity Purchase Option Agreement (2021 Option Agreement).
Clause 6 of the 2021 Option Agreement provided that, subject to cl 7 (which is addressed below), MF LJH Holdings granted to MF Australia Capital an option to purchase 99 ordinary shares in MF LJH Holdings for $1.00, on certain terms and conditions.
Clause 7 imposed what was described as the “FIRB Condition” which was, in short, that any necessary regulatory approvals under the Foreign Acquisitions and Takeovers Act 1975 (Cth) be obtained in relation to the acquisition of shares in MF LJH Holdings by MF Australia Capital. Clause 7(d) provided that:

“(d) nothing in this agreement will cause a binding agreement for the acquisition by the Lender of shares in the Borrower unless and until the FIRB Condition has been satisfied, and no person will obtain rights in relation to shares in the Borrower as a result of this agreement unless and until that condition has been satisfied.”

The option given under the 2021 Option Agreement has not been exercised to date. (As noted below, there was a dispute between the parties as to whether it is capable of being exercised.)

Commencement of proceeding

On 24 July 2023, Empireal commenced this proceeding against Mr Hooker.

Overview of Empireal’s claims

In broad terms, Empireal’s claims against Mr Hooker relate to three main steps in the restructuring of the LJ Hooker Group:
first, the passing of the VA Resolutions in respect of Empireal, LJHRES Holdings and LJH RES on 10 June 2020 (in which Mr Hooker joined as a director of each of those entities);
secondly, the execution of the Restructuring Support Deed on 11 June 2020 (which Mr Hooker signed as the director of L.J. Hooker Investments); and
thirdly, the steps taken to cause the redemption of the RP Shares on 8 August 2020, including the RP Shares Consent Deed (which Mr Hooker signed as a director of LJHRES Holdings) and the RP Shares Resolution (in which Mr Hooker joined as a director of LJHRES Holdings).
In respect of the VA Resolutions, Empireal submitted that Mr Hooker voted in favour of those resolutions “despite the fact that none of [Empireal, LJHRES Holdings or LJH RES] were insolvent or nearing insolvency as at 10 June 2020”, and that the “purported reasons given in support of his decision to vote in favour of placing the companies into administration were false”. Empireal submitted that the true reason why Mr Hooker voted in favour of the VA Resolutions was “to permit the restructure of the LJ Hooker Group, so as to give Mr Hooker beneficial ownership of the Group unencumbered by the Koi debt”.
In respect of the Restructuring Support Deed, Empireal submitted that the effect of this Deed was to prohibit ICG from supporting a DOCA propounded by any person other than L.J. Hooker Investments (of which Mr Hooker was sole shareholder) and to require ICG to support the L.J. Hooker Investments DOCA Proposal, such that no other DOCA would be successful.
In respect of the RP Shares, Empireal submitted that Mr Hooker “caused LJHRES Holdings to consent to the redemption of some 27 million [RP Shares] it held in LJH RES for $1, and to ratify an amendment to the terms of the RP Shares to permit such redemption, thus paving the way for the restructure to proceed”.
Empireal submitted that Mr Hooker had a personal interest in each of these steps, and that each of these steps was contrary to Empireal’s interests. In particular, Empireal submitted that these steps involved Empireal “being placed into voluntary administration when it was not insolvent or nearing insolvency, which inevitably triggered a demand being sent to Empireal by Koi” in respect of the Koi Facility. This demand was said to have resulted in Empireal becoming insolvent, and to have caused it to suffer loss. Further, Empireal submitted that:

“…the restructure resulted in the profit-generating core business of the LJ Hooker Group, which – prior to the restructure – was owned by Empireal via two subsidiaries – LJHRES Holdings and LJH RES – being transferred to a new corporate group ultimately beneficially owned by Mr Hooker for $1, rendering Empireal’s only valuable asset, its shareholding in LJHRES Holdings, worthless.”

Empireal alleged that, by reason of those matters, Mr Hooker had breached his fiduciary duties to Empireal. The remedies sought by Empireal included an account of profits, or alternatively equitable compensation, or alternatively a constructive trust over the sole share in MF LJH Nominees (which is beneficially owned by Mr Hooker).
In addition, Empireal alleged that Mr Hooker’s conduct breached the duties which he owed Empireal pursuant to ss 181 and 182 of the Act (and his equivalent general law duties) “because he acted for an improper purpose, and contrary to the best interests of Empireal and otherwise than in good faith”. In respect of the statutory contraventions, Empireal sought relief under s 1317H of the Act.
Mr Hooker denied any such breaches of duty. In particular, he denied that he voted in favour of the VA Resolutions for any dishonest or improper purpose, and submitted that, at the time of those resolutions, Empireal and the other Appointment Entities were insolvent or likely to become insolvent in the future. Further, he denied that he owed any duties to Empireal when taking steps as a director of other entities, such as executing the Restructuring Support Deed on behalf of L.J. Hooker Investments, or taking steps on behalf of LJHRES Holdings to effect the redemption of the RP Shares.

Relevant Principles

The “conflict rule” and the “profit rule”

In Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 103; [1984] HCA 64, Mason J observed as follows (emphasis added):

“The rule that a fiduciary is not entitled to make a profit without the informed consent of the person to whom the fiduciary duty is owed is not limited to profits which arise from the use of the fiduciary position or of the opportunity or knowledge gained from it for it is said that the basis of this rule is that the fiduciary may not place himself in a situation where his duty and his interest conflict … ”

To similar effect, Gaudron and McHugh JJ observed in Breen v Williams (1996) 186 CLR 71 at 113; [1996] HCA 57 that:

“…equity imposes on the fiduciary proscriptive obligations – not to obtain any unauthorised benefit from the relationship and not to be in a position of conflict. If these obligations are breached, the fiduciary must account for any profits and make good any losses arising from the breach.”

In Pilmer v Duke Group Limited (in liq) (2001) 207 CLR 165; [2001] HCA 31, McHugh, Gummow, Hayne and Callinan JJ quoted (at [74]) the above passage in Breen with approval, and continued (at [78]) as follows:

“In particular, the fiduciary is under an obligation, without informed consent, not to promote the personal interests of the fiduciary by making or pursuing a gain in circumstances in which there is ‘a conflict or a real or substantial possibility of a conflict’ between personal interests of the fiduciary and those to whom the duty is owed. That is how the matter was put by Mason J in Hospital Products. Similar reasoning applies where the alleged conflict is between competing duties, for example, where a solicitor acts on both sides of a transaction.”

In Warman International Ltd v Dwyer (1995) 182 CLR 544 at 557-558; [1995] HCA 18, the High Court observed as follows (citations omitted, emphasis added):

“A fiduciary must account for a profit or benefit if it was obtained either (1) when there was a conflict or possible conflict between his fiduciary duty and his personal interest, or (2) by reason of his fiduciary position or by reason of his taking advantage of opportunity or knowledge derived from his fiduciary position. The stringent rule that the fiduciary cannot profit from his trust is said to have two purposes: (1) that the fiduciary must account for what has been acquired at the expense of the trust, and (2) to ensure that fiduciaries generally conduct themselves ‘at a level higher than that trodden by the crowd’. The objectives which the rule seeks to achieve are to preclude the fiduciary from being swayed by considerations of personal interest and from accordingly misusing the fiduciary position for personal advantage.

Thus, it is no defence that the plaintiff was unwilling, unlikely or unable to make the profits for which an account is taken or that the fiduciary acted honestly and reasonably. …”

In Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 265 CLR 1; [2018] HCA 43 at [68]-[69], Gageler J (as his Honour then was) summarised these principles regarding the “conflict rule” and the “profit rule” as follows (citations omitted):

“‘The first’, often referred to as the ‘conflict rule’, ‘is that which appropriates for the benefit of the person to whom the fiduciary duty is owed any benefit or gain obtained or received by the fiduciary in circumstances where there existed a conflict of personal interest and fiduciary duty or a significant possibility of such conflict: the objective is to preclude the fiduciary from being swayed by considerations of personal interest’. The unconscionability which attracts equitable remedies in circumstances where the conflict rule alone is invoked lies not so much in receipt by the fiduciary of the benefit or gain (over which the fiduciary need not have control) as in retention by the fiduciary of the benefit or gain which in conscience ought to be disgorged to the principal.

‘The second’, often referred to as the ‘profit rule’, ‘is that which requires the fiduciary to account for any benefit or gain obtained or received by reason of or by use of [the] fiduciary position or of opportunity or knowledge resulting from it: the objective is to preclude the fiduciary from actually misusing [the fiduciary’s] position for [the fiduciary’s] personal advantage.’ The unconscionability which attracts equitable remedies in such circumstances lies in pursuit by the fiduciary of self-interest, or, more precisely, in pursuit of an interest other than the exclusive interest of the principal.”

As set out above, the conflict rule and the profit rule direct attention to the fiduciary’s duties and position. The obligation to account for a benefit received by the fiduciary depends either on the benefit having been obtained in circumstances where there was a conflict between fiduciary duty and interest (or a significant possibility of such conflict); or on the benefit having been obtained by use of the fiduciary position (or by the use of some opportunity or knowledge arising from that position).
It is necessary, when determining the scope of fiduciary obligations in a particular case, to have regard to the specific circumstances of that case. In Hospital Products at 102, Mason J observed that the “scope of the fiduciary duty must be moulded according to the nature of the relationship and the facts of the case”. In Howard v Federal Commissioner of Taxation (2014) 253 CLR 83; [2014] HCA 21 at [34], French CJ and Keane J referred to the principle that:

“The scope of the fiduciary duty generally in relation to conflicts of interest must accommodate itself to the particulars of the underlying relationship which give rise to the duty so that it is consistent with and conforms to the scope and limits of that relationship.”

As the Court of Appeal explained in Anderson v Canaccord Genuity Financial Ltd (2023) 113 NSWLR 151; [2023] NSWCA 294 at [152], the “scope” of fiduciary obligations refers to the scope, or subject matter, of the area within which the fiduciary is not free to act self-interestedly (citing Birtchnell v Equity Trustees, Executors & Agency Co Ltd (1929) 42 CLR 384 at 407 per Dixon J; [1929] HCA 24).
In Anderson v Canaccord at [158], the Court of Appeal referred with approval to the following passage in Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 at [179] (Finn, Stone and Perram JJ):

“The concept of ‘duty’ in the ‘conflict of duty and interest’ formula of the first of these is convenient shorthand. It refers simply to the function, the responsibility, the fiduciary has assumed or undertaken to perform for, or on behalf of, his or her beneficiary. What that function or responsibility is, is a question of fact. It may be narrow and circumscribed, as is often the case with specific agencies; it may be broad and general, as is characteristically the case with the functions of company directors; its scope may have been antecedently defined or determined; it may have been ordained by past practice; it may be left to the fiduciary’s discretion to determine; and it may evolve over time as is commonly the case with partnerships.”

In Breen at 82, Brennan CJ referred to Dixon J’s judgment in Birtchnell in observing that:

“Whichever be the source of the duty, it is necessary to identify ‘the subject matter over which the fiduciary obligations extend’. It is erroneous to regard the duty owed by a fiduciary to his beneficiary as attaching to every aspect of the fiduciary's conduct, however irrelevant that conduct may be to the agency or relationship that is the source of fiduciary duty.”

Similarly, in Blythe v Northwood (2005) 63 NSWLR 531; [2005] NSWCA 221 at [194], Mason P (with Giles JA agreeing) observed that: “[t]he fiduciary is not accountable for profits derived outside the scope of the relationship or required, outside that scope, to prefer the principal's interests over those of the fiduciary”. In addition, Bryson JA said (at [211]) that:

“Designation of a relationship as fiduciary is not a signal for exercise of judicial bounty. Fiduciaries characteristically have areas of responsibility which have boundaries, and are free to act in their own interests in all matters outside those boundaries.”

Empireal relied on the observation by Edelman J in Agricultural Land Management Ltd v Jackson (No 2) (2014) 48 WAR 1; [2014] WASC 102 at [266] that the conflict rule, when concerned with conflicts between duty and personal interest, is not limited to situations in which a fiduciary actually prefers his or her personal interest, but extends to situations involving a potential for personal interest to be preferred (or a potential for breach of duty to one principal where conflicting duties are owed to different principals).
In response, Mr Hooker relied on Black J’s statement in Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789 at [360] that “the rule against conflict of interest prohibits a fiduciary acting in a manner inconsistent with that rule, rather than simply occupying a position of conflict or potential conflict”.
As Empireal noted, the Full Court of the Federal Court (Markovic, Banks-Smith and Anderson JJ) in Hylepin Pty Ltd v Doshay Pty Ltd (2021) 288 FCR 104; [2021] FCAFC 201 considered Agricultural Land Management and Colorado Products, and concluded (at [47]-[51]) that Edelman J’s approach in Agricultural Land Management reflected the orthodox view. However, their Honours emphasised (at [51]) that:

“…it is artificial to emphasise only Edelman J’s reference (at [266]) to the sufficiency of the ‘potential’ for personal interests to be preferred to disclose a conflict, in contrast to ‘actual’ preferring, without referring to his Honour’s reasons more comprehensively. As those reasons disclose, it is necessary to consider the situation in which the conflict is said to arise …”

In stating that it was “necessary to consider the situation in which the conflict is said to arise”, their Honours referred to various authorities, including Hospital Products at 102, Grimaldi at [179] and Howard at [34] (each of which has been referred to above).
In Australian Securities and Investments Commission v Jones [2023] WASCA 130 (ASIC v Jones), the Western Australian Court of Appeal (Buss P, Mitchell and Beech JJA) referred (at [187]) to the decision in Hylepin, and the comments there made regarding the decisions in Agricultural Land Management and Colorado Products. Their Honours observed (at [188]) that the differences between the formulations in those two decisions “may be less than sometimes suggested”, stating that:

“Applying the test proffered by Deane J [in Chan v Zacharia (1984) 154 CLR 178 at 198-199; [1984] HCA 36] and Mason J [in Hospital Products at 103], the fiduciary need not take actual advantage of the conflict — it is enough that the fiduciary pursues it in the sense of entering into a transaction or accepting an engagement in which there is a real or sensible possibility of conflict between the fiduciary’s personal interests and the interests of those to whom the fiduciary’s duty of loyalty is owed.”

Their Honours continued as follows (at [188]-[192], emphasis added):

“The personal interest will only engage the conflict rule if it gives rise to a conflict with the fiduciary’s duty or a real or substantial possibility of such a conflict. There will be no conflict of interest if the alleged personal interest of the fiduciary is remote or insubstantial. In El Sayed v El Hawach, Beazley P, Gleeson and Leeming JJA observed, quoting Upjohn LJ, that the conflict rule is ‘flexible’ and ‘must be applied realistically to a state of affairs which discloses a real conflict of duty and interest and not to some theoretical or rhetorical conflict’.

Thus, it has been said in this court that there is, relevantly, a conflict if there is a real and sensible possibility that the fiduciary’s personal interest might sway or influence them away from the proper exercise of their duties and powers. To like effect, in Coope v LCM Litigation Fund Pty Ltd, Payne JA, with whom Gleeson and Leeming JJA agreed, observed that a conflict arises if there is a real and sensible possibility of the personal interests of the fiduciary dividing the loyalty of the fiduciary with the result that he or she could not properly discharge their duties to the beneficiary.

In order for there to be a breach of the conflict rule, it is not necessary that the fiduciary actually preferred their own interests over their duty — it is enough that there was a real risk of the fiduciary doing so.

When a conflict of interest and duty, or a conflict of duties, is asserted, it is important to identify with some precision the duties and interests which are said to conflict or to present a real, sensible possibility of conflicting. The identification of the functions and responsibilities of the fiduciary is a question of fact.”

Similarly, in Australian Careers Institute Pty Ltd v Australian Institute of Fitness Pty Ltd [2016] NSWCA 347 at [132], Sackville AJA (with Bathurst CJ and Meagher JA agreeing) stated that there must be at least a real, or a substantial possibility of a conflict, before a director can be said to be in breach of his or her fiduciary duties. His Honour added that the test for whether there is a real and substantial possibility of a conflict between a director’s personal interests and his or her duties as a director is objective; it is to be determined from the standpoint of an objective observer, with knowledge of all the material facts and circumstances (and see also the additional comments of Bathurst CJ at [3]-[4]).
In Australian Careers Institute at [137], Sackville AJA also observed that in assessing the circumstances of a case, it is important to bear in mind the protective rationale for the imposition of fiduciary duties. His Honour noted that in Chan v Zacharia (1984) 154 CLR 178 at 198–199; [1984] HCA 36, Deane J discerned two distinct themes in the “fundamental rule” that a fiduciary is not permitted to put himself or herself in a position where duty and interest conflict (emphasis added):

“The first [theme] is that which appropriates for the benefit of the person to whom the fiduciary duty is owed any benefit or gain obtained or received by the fiduciary in circumstances where there existed a conflict of personal interest and fiduciary duty or significant possibility of such conflict: the objective is to preclude the fiduciary from being swayed by considerations of personal interest. The second is that which requires the fiduciary to account for any benefit or gain obtained or received by reason of or by use of his fiduciary position or of opportunity or knowledge resulting from it: the objective is to preclude the fiduciary from actually misusing his position for his personal advantage.”

Duty to act for a proper purpose

Pursuant to s 181(1)(b) of the Act, Mr Hooker was obliged to exercise his powers, and discharge his duties, as a director of Empireal for a proper purpose. He owed Empireal substantively the same duty at general law.
Each of the parties referred to and relied upon the following summary of the relevant principles by Ipp J (with whom Malcolm CJ and Seaman J agreed) in Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187 at 218:

“The principles applicable in determining whether directors of a company have acted for an improper purpose and in abuse of their powers are well settled. Relevantly, as regards the issues that arise in this case, it may be said that those principles are:

(a) Fiduciary powers and duties of directors may be exercised only for the purposes for which they were conferred and not for any collateral, or improper purpose.

(b) It must be shown that the substantial purpose of the directors was improper or collateral to their duties as directors of the company. The issue is not whether a management decision was good or bad; it is whether the directors acted in breach of their fiduciary duties.

(c) Honest or altruistic behaviour by directors will not prevent a finding of improper conduct on their part if that conduct was carried out for an improper or collateral purpose. Whether acts were performed in good faith and in the interest of the company is to be objectively determined, although statements by directors about their subjective intentions or beliefs will be relevant to that inquiry.

(d) The court must determine whether but for the improper or collateral purpose the directors would have performed the act impugned.”

In order to establish a breach, the starting point is to identify the relevant power in question. It is then necessary to determine the purpose for which the power was exercised and then assess whether that identified purpose was proper: VicBeef Holdings Pty Ltd v Chen [2021] VSC 546 at [118] (M Osborne J).
In Australian Securities and Investments Commission v iSignthis Ltd [2024] FCA 669 at [591], McEvoy J observed that the purpose of conduct is the end sought to be achieved, and not the reason for seeking that end, referring to Australian Securities and Investments Commission v Mitchell (No 2) [2020] FCA 1098 at [1524], and News Ltd v South Sydney District Rugby League Football Club Ltd (2003) 215 CLR 563; [2003] HCA 45 at [18] (Gleeson CJ).
Section 181(1)(b) has a subjective element, namely, the existence of a purpose being pursued by the director: Sunnya Pty Ltd v He [2025] NSWCA 79 at [24] per Basten AJA (with whom Bell CJ and Leeming JA agreed). Often that element will be derived from surrounding circumstances, which may contradict a director’s statement as to his or her subjective intentions: ibid.
As Ipp J observed in the passage from Wheeler that is quoted above, a director will act for an improper purpose if the substantial purpose for the director’s conduct was improper. It was common ground that the question whether the relevant purpose was “improper” is to be determined objectively (and see, in this regard, Colorado Products at [421] (Black J)). Accordingly, a director can act improperly even if the director has the subjective belief that the conduct is in the interests of the company: iSignthis at [591].
In Sunnya at [25], Basten AJA emphasised that s 181 “is directed to the exercise of powers or discharge of a duty as a director of the company”. His Honour observed that: “Acting, whilst a director of one company, as agent for another company, albeit not in the best interests of the first company, may not contravene s 181(1)”. So, on the facts of that case, although a director of Sunnya had negotiated, as agent for a different company, contracts “which were inimical to the interests of Sunnya”, she “did not breach s 181(1) because she was not acting as a director of Sunnya” in negotiating those contracts.

Duty to act in the best interests of the company

Section 181(1)(a) of the Act provides that a director must exercise their powers and discharge their duties in good faith in the best interests of the corporation. There is a corresponding duty at general law.
In Chew v R (1991) 4 WAR 21 at 49, Malcolm CJ identified that this duty has a number of aspects:

“First, the directors must exercise their powers in the interests of the company, they must not misuse or abuse their powers. Secondly, they must avoid conflict between their personal interests and those of the company. Thirdly, they should not take advantage of their position to make secret profits. Fourthly, they should not misappropriate the company's assets for themselves.”

This passage was cited with approval in Sunnya at [30].
The words “in the best interests of the corporation” emphasise “the significance of the relevant constituencies – in particular, the shareholders as a whole, and the creditors in the case of impending insolvency”: Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052 at [106] (Brereton J).
To act in good faith in the company’s best interests must be understood as to act in honest pursuit of the company’s best interests: Sunnya at [24]. Accordingly, s 181(1)(a) has a subjective element (namely, acting honestly), but this issue will often be determined by surrounding circumstances, which may contradict a director’s subjective statements as to his or her state of mind: ibid.
In Colorado Products at [420], Black J referred to the following divergence in the authorities, which his Honour did not consider to be material in the circumstances of that case:

“In Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 44 WAR 1; 89 ACSR 1; [2012] WASCA 157, the Court of Appeal of the Supreme Court of Western Australia unanimously held that the corresponding general law duty to act in good faith in the company’s best interests was subjective and would be complied with if directors honestly believed they acted in the company’s best interests (at [923] per Lee AJA, at [1988] per Drummond AJA, at [2027], [2772], [2795] per Carr AJA). The alternative view is that a contravention of that limb of s 181 can be established if the law objectively considers that what the director did was improper, even if the director subjectively believed that he or she was acting in the company’s best interests: see, for example, Australian Growth Resources Corporation Pty Ltd (recs and mgrs. apptd) v Van Reesema (1988) 13 ACLR 261 at 270–1; 6 ACLC 529 per King CJ; Mernda Developments Pty Ltd (in liq) v Alamanda Property Investments No 2 Pty Ltd (formerly known as Dollarforce Financial Services Pty Ltd) (2011) 86 ACSR 277; [2011] VSCA 392 at [32]–[33].”

In Sunnya at [29], Basten AJA referred to this passage from Colorado Products and observed that:

“the use of the labels ‘subjective’ and ‘objective’ in relation to s 181 is unhelpful and distracting. The repeated references in judgments to an unresolved issue suggests that the labels suppose a false dichotomy. The statutory language does not use them.”

His Honour also observed that: “an honest belief as to purpose under s 181 will only be satisfied where that belief is rational” (at [27]).
In Special Gold Pty Ltd (in liq*) v* Dyldam Developments Pty Ltd (subject to a deed of company arrangement) (No 2) [2025] FCA 825 at [77]-[78], Jackman J referred to Basten AJA’s observations in Sunnya and agreed that “the labels ‘subjective’ and ‘objective’ should be avoided”. His Honour continued as follows (emphasis added):

“In my view, the preferable approach is to identify the elements which constitute the concept of good faith. That task requires that one turn to first principles concerning the fundamental fiduciary obligation which requires a person to act in good faith in the best interests of another or others, as developed under the general law and now embodied in various statutory provisions. As I set out below, that analysis leads to the conclusion that the duty of good faith of a director under s 181(1)(a) requires that the director act in accordance with what he or she honestly and rationally believes to be in the best interests of the corporation.”

Jackman J added (at [87]) that “rationally” in this context means “that the decision must be one which a reasonable director in the position of the directors of the particular corporation could have made”.
Section 181(1)(a) may be contravened if a director promotes his or her personal interest in a situation where there is a conflict or real or substantial possibility of a conflict between those interests and the company’s interests: Colorado Products at [420] (Black J), referring to Australian Securities and Investments Commission v Adler [2002] NSWSC 171 at [735] (Santow J).

Improperly gaining an advantage or causing detriment

Section 182(1) of the Act provides as follows:

(1) A director, secretary, other officer or employee of a corporation must not improperly use their position to:

(a) gain an advantage for themselves or someone else; or

(b) cause detriment to the corporation.

There is a purposive element in the provision: “to gain” means “in order to gain”, and “to cause” means “in order to cause”: Chew v R (1992) 173 CLR 626 at 632-633 (per Mason CJ, Brennan, Gaudron and McHugh JJ); [1992] HCA 18; and Hart Security Australia Pty Ltd v Boucousis [2016] NSWCA 307 at [85] per Meagher JA, (with Bathurst CJ and Beazley P agreeing).
It is not necessary, in order to establish a contravention, to show that any such advantage has in fact been gained, or any such detriment has in fact been caused.
Section 182(1) will not have been contravened unless the director has “use[d] their position” in order to gain a relevant advantage or cause detriment to the company: Hakea Holdings Pty Ltd v Neon Underwriting Ltd (2023) 296 FCR 611; [2023] FCAFC 34 at [8] per Colvin and Button JJ.
In Hakea Holdings at [7], Colvin and Button JJ observed that “[t]here is (perhaps surprisingly) little authority on s 182(1) and, in particular, on what is required in order to conclude that a director has ‘use[d] their position’ to gain a relevant advantage or cause detriment to the company”. Their Honours continued as follows:

“The Explanatory Memorandum accompanying the Bill introducing a predecessor provision (s 229(4)) into the Companies Act 1981 (Cth) is typically brief, but made the point that use-based prohibitions were being broadened so that the legislation not only prohibited the improper use of information acquired by virtue of an officer or employee’s position, but also improper use of the officer or employee’s ‘position as such’ (Explanatory Memorandum to the Companies Bill 1981 (Cth) at [552]). Prior to 1981, State-based companies’ legislation only contained specific use of information (cf. use of position) prohibitions (see, eg, s 107(2) of the Companies Act 1958 (Vic), followed by s 124(2) of the Companies Act 1961 (Vic)).”

Colvin and Button JJ also referred (at [9]) to the decision in Lewis v Nortex Pty Ltd (in liq) [2004] NSWSC 1143 (Hamilton J) as being:

“an example of a case where the actions of a company director — having a second company he controlled issue a statutory demand on the first company, and by withdrawing a personal guarantee — were not undertaken by the director in exercising powers or carrying out his duties as a director of the company in question, even though they directly affected the first company and its operations; rather, those actions were taken in his personal capacity, or in his capacity as a director of the second company: at [189]-[191].”

(Emphasis in original)

Impropriety is to be determined objectively: Sunnya at [52]. Impropriety will be established where there is a breach of the standards of conduct that would be expected of a person in his or her position by reasonable persons with knowledge of the duties, powers and authority of his or her position as director, and the circumstances of the case, including the commercial context: Doyle v Australian Securities and Investments Commission (2005) 227 CLR 18; [2005] HCA 78 at [35] (per curiam).

Duty to prevent insolvent trading

There is no allegation by Empireal that Mr Hooker breached his duty under s 588G of the Act to prevent insolvent trading of Empireal (or any other entity). However, Mr Hooker relied on the existence of this duty as a relevant matter when assessing the various allegations of breach of duty made against him. Accordingly, I have summarised the relevant principles below.
Section 588G of the Act relevantly provides as follows:

(1) This section applies if:

(a) a person is a director of a company at the time when the company incurs a debt; and

(b) the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and

(c) at that time, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be; and

(d) that time is at or after the commencement of this Act.

…

(2) By failing to prevent the company from incurring the debt, the person contravenes this section if:

(a) the person is aware at that time that there are such grounds for so suspecting; or

(b) a reasonable person in a like position in a company in the company's circumstances would be so aware.

In Woodgate v Davis (2002) 55 NSWLR 222; [2002] NSWSC 616 at [36], Barrett J made the following observations (emphasis added):

“Section 588G and related provisions serve an important social purpose. They are intended to engender in directors of companies experiencing financial stress a proper sense of attentiveness and responsible conduct directed towards the avoidance of any increase in the company’s debt burden. The provisions are based on a concern for the welfare of creditors exposed to the operation of the principle of limited liability at a time when the prospect of that principle resulting in loss to creditors has become real.”

In Quin (in his capacity as liquidator of Roderick Group Pty Ltd (in liq)) v Vlahos (2021) 64 VR 319; [2021] VSCA 205, the Victorian Court of Appeal (Kyrou, Kennedy and Walker JJA) made the following observations regarding the operation of s 588G(1)(c), which concerns whether there are reasonable grounds for suspecting that the company is insolvent at the time when a debt is incurred (at [216], footnotes omitted, emphasis in original):

“(a) First, the requirement under sub-s (1)(c) is an objective one. The provision calls for an inquiry into the objectively formed state of mind of ‘a director of reasonable competence and diligence, seeking properly to perform his or her duties as imposed by law ... and capable of reaching a reasonably informed opinion as to [the company’s] financial capacity’. The provision is not concerned with the particular director whose conduct is under scrutiny.

(b) Secondly, the focus of the sub-section is on a specific state of mind, namely, ‘suspicion’. This can be contrasted with earlier formulations of analogous provisions, such as that found in s 556 of the Companies (NSW) Code 1981, which required there to be reasonable grounds for expecting a company’s insolvency. A suspicion is ‘less developed and less well formulated than [an] expectation’. A suspicion that something exists is ‘more than a mere idle wondering whether it exists or not; it is a positive feeling of actual apprehension or mistrust, amounting to “a slight opinion, but without sufficient evidence”’.

(c) Thirdly, where there is material before the court that is capable of proving actual insolvency, and where the material was available to the director at the time the debt was incurred, a court will generally find that a reasonable person in the position of the director would have concluded that the company was unable to pay its debts as they fell due. However, the court must always ultimately make its own findings, based on all of the facts and circumstances that existed at the time, and without the benefit of hindsight.”

The definition of insolvency in s 95A of the Act adopts a “cash flow test”, which turns upon the income sources available to the company and the expenditure obligations which it has to meet, rather than a balance sheet test which focuses upon the value of the company’s assets and liabilities as reflected in the company’s books. However, a balance sheet test can provide context for the application of the cash flow test: Re Custom Bus Australia Pty Ltd (in liq) [2021] NSWSC 1036 at [33] (Black J) and the cases there cited.
Whether a company is able to pay its debts as and when they fall due and payable is a question of fact to be determined objectively and without hindsight in all the circumstances, including the nature of the company’s assets and business, and the Court will have regard to commercial realities in that regard: Re Custom Bus Australia at [34].
In assessing a company’s capacity to pay its debts, the Court should have regard to all of the assets of the company as at the relevant time in order to determine the extent to which those assets were liquid or realisable within a timeframe that would allow each of the debts to be paid as and when they became due. Apart from an assessment of the company’s own assets, regard can also properly be had to funds which the company can borrow, on a secured or unsecured basis, or otherwise obtain from lenders or shareholders and which were, as a matter of commercial reality, available to the company to enable its debts to be paid. The case law recognises that, in determining a company’s solvency, the Court may have regard to the likelihood that it will have funds available to it from sources with which it has no formalised agreement or understanding, including loans from its directors or from third parties, at least if they are not repayable in the short term, and the company’s ability to borrow funds can also be taken into account: Re Custom Bus Australia at [35].
The test in s 95A “is directed to a present inability to pay all debts as and when they become due and payable, including debts that will become payable in the immediate future”: Anchorage Capital Master Offshore Ltd v Sparkes (2023) 111 NSWLR 304; [2023] NSWCA 88 at [235] (Ward P, Brereton JA, Griffiths AJA) (emphasis in original). The “correct question is whether, at the date of alleged insolvency, it can be said that the company is already in a state of inability to pay those debts when they fall due”: ibid at [245].
Section 436A(1) of the Act provides as follows:

(1) A company may, by writing, appoint an administrator of the company 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.

The power under s 436A(1) of the Act is enlivened not only where the directors form the opinion that the company “is insolvent”, but also where they form the opinion that the company “is likely to become insolvent at some future time”. Whereas the former is an opinion that the company “is already in a state of inability” to pay its debts when they fall due (including debts that will become payable in the future), the latter is an opinion that it is more probable than not that the company will become, at some future time, unable to pay all its debt when they become due: see Anchorage Capital at [245], [256]-[257].
If the relevant directors’ opinion is not held, or not held genuinely or in good faith, then the resolution to appoint an administrator is invalid: In the matter of Cyprus Community of NSW Ltd [2024] NSWSC 1629 at [53] (Black J). An inability to determine whether a company is insolvent cannot, without more, found an opinion that it is or is likely to become insolvent: ibid; citing Kazar v Duus (1998) 88 FCR 218 at 231; [1998] FCA 1378; Wagner v International Health Promotions (1994) 15 ACSR 419 at 421; Re Keneally as administrator of Australian Blue Mountain International Cultural & Tourist Group Pty Ltd (admin apptd*)* [2015] NSWSC 937 at [74].
In Re Lime Gourmet Pizza Bar (Charlestown) Pty Ltd (formerly under administration) [2015] NSWSC 244 at [21]-[22], Black J summarised the relevant principles regarding the exercise of the power under s 436A as follows:

“… An administrator can be appointed under s 436A of the Corporations Act if the board … held the specified belief that the Companies were insolvent or were likely to become insolvent in the future.

… [I]n Kazar v Duus above at 230 – 231, [Merkel J observed] that it is implicit in the statutory requirement under s 436A of the Corporations Act that the relevant director’s opinion as to the insolvency, or likely insolvency, of the company that the opinion be bona fide and genuinely formed. Statements of the directors’ opinion are relevant to whether they have formed the requisite opinion but the court must approach that question objectively: Kazar v Duus above; Smolarek v McMaster as Administrator of Eznut Pty Ltd [2008] WASCA 234. … it is not sufficient to support an administrator’s appointment that directors are merely uncertain as to a company’s solvency: Kazar v Duus above; [Wagner] at 421. … [I]n Downey v Crawford [2004] FCA 1264; (2004) 51 ACSR 182 at 218, [Weinberg J observed] that the question whether directors genuinely believed that a company was actually insolvent, or likely to become so at some future time, will depend largely upon whether they took adequate steps to satisfy themselves that the statutory requirements were met before resolving to appoint an administrator.”

The requirement that the relevant opinion be held genuinely or in good faith will only be satisfied where the opinion is held on rational grounds (see paragraphs [287]-[289] above).

Seriousness of allegations

Empireal made, as outlined below, serious allegations of dishonesty against Mr Hooker.
In deciding whether I am satisfied that Empireal has established its claims on the balance of probabilities, I must take into account the nature of the cause of action, the nature of the subject matter of the proceeding, and the gravity of the matters alleged: Evidence Act 1995 (NSW), s 140(2); Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-362 per Dixon J; [1938] HCA 34; and Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 at 449-450 per Mason CJ, Brennan, Deane and Gaudron JJ; [1992] HCA 66.

Credit

Each of Mr Agarwal and Mr Hooker gave evidence and was cross-examined. Submissions were made regarding the credit of each of them.

Mr Agarwal

Mr Hooker submitted that Mr Agarwal is a person who “will say or do anything to avoid accepting” his own responsibility for the loss incurred by Koi as a result of entering into the Koi Facility, and that “the Court would not accept the evidence of Mr Agarwal unless it was corroborated by contemporaneous documents or against his or Koi’s interest”. Three specific matters were advanced in support of this submission.
First, it was submitted that Mr Agarwal had gone “to great lengths” in “a carefully crafted (and extensive) affidavit” to suggest that Koi was a supportive lender when the contemporaneous documents showed that Koi was actively preparing for the enforcement of its securities. It should be noted that Mr Hooker did not advance a submission that Mr Agarwal deliberately sought to mislead the Court as to Koi’s intentions, nor was any such proposition put to Mr Agarwal in cross-examination. I accept that, as with any witness giving evidence of his knowledge, intentions and state of mind more than five years earlier, Mr Agarwal’s evidence as to those matters should be treated with caution, and that such matters should primarily be determined by reference to the contemporaneous documentary record.
Secondly, it was submitted that Mr Agarwal’s “secret recording” of two conversations with Mr Hooker was “underhanded”, and that Mr Agarwal’s failure to acknowledge that this was the case “should cause the Court to be circumspect about Mr Agarwal”. I do not accept this submission. There was no evidence, or submission, that the recording of a conversation, without first obtaining the consent of the other participants, offended any law in Singapore, where the recording was made. Mr Agarwal gave evidence that he recorded the calls in accordance with a standard business practice at Olympus, namely, to record calls that were regarded as important. Although there were no extant recordings of a number of other calls relating to the LJ Hooker Group which Mr Agarwal agreed were also important (such as calls with Mr Borrelli), Mr Agarwal explained that, generally, once a note was taken of the call, the recording was deleted. It is understandable, given the concern that Koi held regarding the circumstances around the appointment of the Administrators and the restructuring of the LJ Hooker Group, that Koi kept a recording of Mr Agarwal’s discussions with Mr Hooker about those matters.
Thirdly, it was submitted that Mr Agarwal’s “claim that he was shocked to learn”, on 10 June 2020, that any of the LJHRES Group companies would be placed into voluntary administration was clearly contradicted by the “actual voice recording of that conversation where no element of surprise is shown”. I consider that it is unsafe to draw, from the sound or tone of someone’s voice on a telephone call (and particularly a business call), such an inference.
For those reasons, I do not make any adverse credit finding against Mr Agarwal of the type sought by Mr Hooker. I have, however, assessed his oral evidence – particularly regarding his intentions and knowledge, or the content of conversations – in light of the contemporaneous documentary record, objectively established facts and the apparent logic of events.

Mr Hooker

Empireal submitted that the Court should find that Mr Hooker was a dishonest witness. In support of this submission, Empireal identified, in closing written submissions, various aspects of Mr Hooker’s evidence which were said to be “demonstrably false”, or “misleading”, or “evasive”.
As Basten JA observed in Sangha v Baxter [2009] NSWCA 78 at [155]-[156] (Handley AJA agreeing), there “are risks in making global findings about credibility of any particular witness”:

“Because a witness has not told the truth with respect to a particular matter does not mean that other parts of his or her evidence are untruthful. Where possible, an assessment should be made of the reasons for the untruthfulness in order to see if other aspects of the evidence are likely to be infected by the same concern. Further, evidence may be rejected because it is apparently unreliable, possibly mistaken or deliberately untruthful or capable of being categorised in a variety of ways which are unlikely to be capable of clear delineation in some cases.

Further, findings of credibility are not usually findings with respect to factual issues in the case, but are rather subsidiary findings on the way to determination of issues. Like many aspects of the evidence in a trial, the evidence of a witness who is believed to have lied in a particular respect, will nevertheless be able to bear some weight and should be placed into a balance, with other material evidence, before a conclusion is reached in relation to a critical fact. The rejection of a witness in total, absent corroboration is likely to mean that, even where corroborated, little attention will be paid to the evidence of the witness and less to the possible consequences which might flow from the fact that particular evidence is shown to be truthful: see generally, King v Collins [2007] NSWCA 122 at [44].”

Further, in various instances, Empireal’s submission that Mr Hooker had given dishonest evidence depended upon the proposition that Mr Hooker had acted dishonestly at the time of the events in question. For example, Empireal submitted that Mr Hooker “gave false evidence in relation to the purported reasons for placing Empireal, LJHRES Holdings and LJH RES into voluntary administration”, and that the “purported” reasons were “confected”.
Having regard to those matters, I will address specific aspects of Mr Hooker’s evidence which were said to be false, when dealing below with Empireal’s submissions that Mr Hooker was acting dishonestly in taking steps to place Empireal and other entities into voluntary administration, for the purpose of gaining a benefit for himself.
One general observation that may be made is that Mr Hooker repeatedly stated in cross-examination that he had little or no recollection of conversations or meetings at the relevant time, or of his state of mind upon reading certain materials, or of his knowledge or intentions at certain stages in the series of events leading up to the restructure of the LJ Hooker Group, or of advice that he was given.
That is not surprising in circumstances where the relevant events occurred five to six years ago, where there were numerous meetings, emails and conversations in relation to the proposed restructure of the LJ Hooker Group across the course of several months, and where a very large number of documents were generated in relation to the restructure and the voluntary administration of the Appointment Entities.
Given those matters, I have placed little weight on any statements made by Mr Hooker in his affidavit regarding events, or discussions, or his thought processes, particularly where such statements are not established by, or consistent with, the contemporaneous documentary record.

Mr Hooker’s reasons for voting in favour of the VA Resolutions

Before dealing with the individual claims advanced by Empireal, it is convenient to deal first with Empireal’s contention that Mr Hooker dishonestly contrived reasons for placing Empireal, LJHRES Holdings and LJH RES into voluntary administration, in order to obtain for himself the “Personal Benefits” (being, in short, beneficial ownership of the LJ Hooker Group free of any debt to Koi: FASOC, [29], [102]).
In particular, Empireal pleaded that the email correspondence between Mr Hooker, Mr Weir and Mr Heathcote which “purported” to record their reasons for placing the Appointment Entities into voluntary administration (being the “Reasons” Document referred to at paragraphs [156]-[161] above) did not record the genuine reasons of the directors for taking that step, and instead included reasons that were “false” (FASOC, [60]-[70]).
Empireal submitted that it was not a necessary integer of its case to find that Mr Hooker had engaged in such conduct, but that the evidence supported such a finding and that, if such a finding were made, the Court would “more readily”, if not “inevitably”, be satisfied that Mr Hooker had breached his duties to Empireal and had, in particular, acted for an improper purpose and in breach of the conflict rule.

Who is alleged to have been involved in Mr Hooker’s dishonest conduct?

Each of Mr Hooker, Mr Weir and Mr Heathcote had a hand in drafting the “Reasons” Document. It follows that, on Empireal’s case, each of them was responsible for the creation of a deliberately false and misleading document. In closing submissions, Empireal stated that: “Those reasons are demonstrably false, and the Court will find that the reasons were not genuinely believed by any member of the board, having regard to matters known to Mr Hooker, Mr Weir and Mr Heathcote as at 10 June 2020” (emphasis added).
Empireal did not advance any explanation, let alone a plausible explanation, as to why Mr Weir and Mr Heathcote would have been complicit in the creation of a document which falsely recorded their reasons for voting in favour of the VA Resolutions, particularly in circumstances where Mr Hooker had expressly warned them to read and verify that they were happy with the contents of the “Reasons” Document because “they are board minute details people will go over later” (see paragraph [158] above). Neither Mr Weir nor Mr Heathcote is alleged to have received any personal benefit from, or have had any personal interest in, the VA Resolutions or the consequent restructure of the LJ Hooker Group.
Mr Bowden of Gilbert + Tobin attended the board meetings on 10 June 2020, and a revised version of the “Reasons” Document was sent to him, attached to an email with the subject line: “Record of Board Discussions prior to Insolvency Resolutions” (see paragraph [160] above). There is no evidence that Mr Bowden raised any query or concern in response to the contents of this document. In particular, there is no evidence that Mr Bowden expressed any concern, on receiving the “Reasons” Document, that this document did not accurately reflect what he understood to be the reasons for the directors having voted in favour of the VA Resolutions at the meetings which he attended.
More generally, Empireal did not make any allegations or submissions that were critical of the conduct of Mr Bowden or of any other partner of Gilbert + Tobin. In particular, there was no suggestion that Gilbert + Tobin had assisted Mr Hooker in “contriving” reasons for placing Empireal, LJHRES Holdings and LJH RES into voluntary administration. Nor was there any suggestion that the advice given by Gilbert + Tobin to the directors – including their advice in relation to Koi’s “delinking” proposal and “consensual sale” proposal – did not represent their genuinely held views on those matters.
Nor did Empireal make any allegations or submissions that were critical of the conduct of KPMG, who provided advice to the directors prior to their decision to place the Appointment Entities into voluntary administration, and whose personnel subsequently acted as the Administrators.

Significance of “For Your Eyes Only” Email and “X File” Email

In contending that Mr Hooker had “contrived” reasons for placing Empireal, LJHRES Holdings and LJH RES into voluntary administration, Empireal placed reliance on Mr Hooker’s use, in his “For Your Eyes Only” Email, of the phrase “The Olympus Story” and, in particular, the heading “Background – this is the story we paint for Olympus” (see paragraph [80] above).
However, Empireal did not, in submissions, identify any statement in the section of this email headed “Background – this is the story we paint for Olympus” which was alleged to be false or misleading. For example, this section referred to management having taken steps to “reforecast FY2021 with the assistance of PWC”, and set out “high level” figures, including that “EBITDA will drop by half over the next 12 months YoY [year-on-year] and on a run rate basis by a third”. A table showed that EBITDA for the LJHRES Group was forecast to fall from $14.7m to $7.1m, with EBITDA for the LJHRES Group together with the LJX Group forecast to fall from $1.5m to -$4.5m (while net debt was forecast to increase from $90.7m to $101.4m). Empireal did not point to any evidence that these views as to the LJ Hooker Group’s forecast performance were not genuinely held or rationally based.
The reference to “painting” a “story” for Olympus/Koi is explained by the context in which it appears. Immediately prior to the use of those terms, Mr Hooker explained to Mr Fuchs that:
there was “a potential argument that the LJHRES business is worth not much more than the value of the ICG [Facility], and LJX is worthless to anyone else”;
“If this argument can be made there is an opportunity to reset the debt stack”; and
“Option A” was to make an offer to Koi “for cents in the dollar to walk [a]way and leave us to try an[d] create value”, with Koi getting “some warrants for upside”, with Option B being to “put the group into voluntary administration” in the event that “Olympus decide to play hard ball”.
Having regard to that context, Mr Hooker’s reference to the “story” to be “painted” to Olympus/Koi is a reference to the matters that will be presented to Koi in an effort to persuade Koi to accept Option A. It does not convey any intention on the part of Mr Hooker to express views about the financial position of the LJ Hooker Group which were knowingly false or not genuinely held, or to “contrive” reasons for placing any entities in the Group into voluntary administration.
Similarly, I am not satisfied that Mr Hooker’s reference to a “potential argument” regarding the financial position of the LJHRES Group conveys any intention on his part to advance any view which he did not genuinely hold. Instead, the reason that there is a “potential argument that the LJHRES business is worth not much more than the value of the ICG [Facility]” is that the financial position of the LJ Hooker Group was, as at around the time of this email, the subject of further investigation and analysis by the Group’s advisers. In particular, updated forecasts were being sought from PwC (with these being provided to Koi at the end of April 2020), and an analysis of the LJ Hooker Group’s financial position was being sought from KPMG (with the Project Cork Report being provided to Koi in early May, see paragraph [85] above).

“Plainly, Mr Hooker’s plan was to confect a story that each of Empireal, LJHRES Holdings and LJH RES was insolvent so that Koi would accept a nominal amount by way of repayment on its Loan. That is why Mr Hooker used the language of ‘could be insolvent’ and ‘technically insolvent’ in respect of those entities - it is clear that Mr Hooker did not genuinely believe that any of those entities was insolvent.”

I am not satisfied that Mr Hooker’s use of the phrases “could be insolvent” and “technically insolvent” provides a basis for inferring that he did not have (as at 10 June 2020) any genuine belief that Empireal, LJHRES Holdings or LJH RES were either insolvent or likely to become insolvent.
The first of those phrases is used in the following context: “without shareholder financial support for LJX, all of LJX, Empireal and LJHRES Holdings could be insolvent, so the Directors could put these companies into VA to save the group”. Mr Hooker is here referring to the potential consequences (hence the use of “could be”) of a failure to secure shareholder support for the LJX Group which, at that stage, was uncertain. Shortly before this statement, Mr Hooker had noted that an “immediate step” was to “[a]sk shareholders if they are willing to support LJX”, adding that: “Some shareholders might support LJX however only if debt stack is reset to a sustainable level – namely Olympus debt is taken out”. Accordingly, the potential insolvency of LJX, Empireal and LJHRES Holdings depended, in Mr Hooker’s view as at 3 May 2020, on two matters which were unknown, namely, whether a deal could be reached with Olympus and whether shareholders would support LJX if such a deal could be reached.
The second of these phrases is used in the following context: “Empireal and LJHRES Holdings can both be put into VA too for being technically insolvent”. In the same email, Mr Hooker states that “LJHRES is technically in default by ICG” and that “[a]t any time ICG could call it and appoint their own VA process”. That is, the term “technically insolvent” appears to be used by Mr Hooker to refer to a situation where there is an existing state of affairs which amounts to a default under the terms of either the Koi Facility or the ICG Facility, and the secured lender has the ability at any time to issue a notice of default and to demand the payment of the outstanding debt and interest (which the borrower and guarantors would be unable to pay). Mr Hooker is likely intending to refer to this state of affairs when, immediately after using the phrase “technically insolvent”, he refers to the “directors hav[ing] a gun to their head”. (I address below Empireal’s submission that, when the VA Resolutions were passed, no notice of default had been issued by either of Koi or ICG, and therefore there was no basis for Mr Hooker to hold the view that either of Empireal or LJHRES Holdings was insolvent or likely to become insolvent.)
Empireal also placed reliance on Mr Hooker’s statement that putting Empireal and LJHRES Holdings into voluntary administration “cuts the head off [the] LJHRES group”. There is no doubt that the object of the restructure which was being discussed here, and which was put into place following the appointment of the Administrators, was to sever the connection between Empireal and the LJHRES Group (and therefore between Empireal and the Core Business), and thereby to sever the connection between the Core Business and the Technology Business. Mr Hooker readily conceded this in cross-examination:

“…cutting the head off the group was bifurcating the technology business and the holding company from what we’ll call it the body, so that was cutting the head off it, a pretty common term in private equity”.

It was understood by Mr Hooker at the time that, unless there was shareholder support for the Technology Business, the entities within the LJX Group which operated this business would need to go into voluntary administration. This is reflected in the following statement at the start of the “X File” Email: “Agreed with Olympus that if shareholders don’t support LJX, then VA is the only path”. Further, Mr Hooker understood that, in those circumstances, steps would need to be taken to sever the connection between the Technology Business and the Core Business. This was the same imperative that lay behind Mr Agarwal’s “delinking” proposal.
There was, of course, a critical difference between the “delinking” proposal and “cutting the head off the group”; namely, the former involved the LJHRES Group (which operated the Core Business) remaining linked to Empireal (which had guaranteed repayment of the Koi debt), while the latter involved Empireal, together with the LJX Group, being severed from the LJHRES Group.
The severance of this link to Empireal (and therefore to Koi) was plainly an outcome that the directors were seeking to achieve by any voluntary administration process and consequent restructuring of the LJ Hooker Group. For example, Mr Hooker stated in the “X File” Email that:

“By putting Empireal and LJHRES Holdings into VA, then the head is cut off the LJ Hooker [Group]. Olympus ability to move is limited. The VA limits Olympus from changing the directors in these companies and most importantly in LJHRES which is in ICGs security net. So ICG is not dragged into the fight at this stage and the only valuable asset is out of Olympus reach.”

Further, as set out at paragraph [123] above, Gilbert + Tobin advised against a form of restructuring which would have left in place a link between the entity which owned the LJHRES Group and the Koi Facility.
While I accept that Mr Hooker and the other directors (with the assistance of their legal advisers) wanted to ensure that, following any voluntary administration process and consequent restructure, there would not be a link between the LJHRES Group and Empireal (and therefore not a link to the LJX Group or the Koi Facility), it is plain – from the terms of the “For Your Eyes Only” Email and the “X File” Email – that a restructuring in a voluntary administration process was not Mr Hooker’s (or Mr Weir’s) preferred outcome. Instead, this was “Plan B” or “Option B”, because it was recognised that the voluntary administration process would potentially have negative impacts for staff, agents and franchise owners (as well as the other negative consequences identified in the Project Cork Report: see paragraph [88(4)] above). “Plan A” or “Option A” was to explore whether a deal could be negotiated for Koi to accept a reduced amount (funded by Mr Fuchs) in satisfaction of its debt, which would avoid the need for any voluntary administration process. “Plan B” was to be pursued – and the link to Empireal was to be severed – only in the event that no such deal was possible.

When was the decision to place the companies into administration taken?

Empireal submitted that Mr Hooker’s evidence that he did not make the decision to place Empireal, LJHRES Holdings and LJH RES into voluntary administration until 10 June 2020 was “false”. In support of this submission, Empireal referred to the fact that on 3 June 2020:
Mr Hooker sent an email to the head of PR and Marketing for the LJ Hooker Group in which he stated “5 x Non LJ Hooker branded holding companies are placed into VA” and provided, in dot points, the proposed “Public Message” in respect of this development (see paragraph [144] above); and
Gilbert + Tobin circulated a draft “Offer Letter” to Mr Eagle and the other proposed administrators.
The drafting of a press release had been identified, in a document circulated by Mr Hooker on 26 May 2020, as a step “to be done before any Administration” (see paragraphs [124]-[126] above). The preparation of this release and the drafting of the offer letter to the Administrators were steps taken in order to be ready for the voluntary administration of entities within the LJ Hooker Group, and these communications on 3 June 2020 are consistent with an expectation that the appointment of the Administrators might or would occur in the near future.
However, it does not follow that Mr Hooker’s evidence that the “decision” to appoint the Administrators to each of Empireal, LJHRES Holdings and LJH RES was not made until 10 June 2020 is untrue.
The decision to enter into voluntary administration was a decision that had to be taken by the respective boards of each of Empireal, LJHRES Holdings and LJH RES (rather than by their individual directors), and this decision was taken by each of those boards only when the VA Resolutions were passed on 10 June 2020.
As noted above, each of the “For Your Eyes Only” Email and the “X File” Email outlined that the appointment of voluntary administrators was an “Option B” or a “Plan B”, which was to be implemented by the directors only in the event that an agreement was unable to be reached whereby Koi would accept a reduced amount, to be funded by Mr Fuchs, in respect of the Koi debt. In particular:
the “For Your Eyes Only” Email, which was sent by Mr Hooker to Mr Fuchs (following review by Mr Weir), stated that “Option A” was for there to be an “offer made to Olympus for cents in the dollar to walk away”, with “some warrants for upside”, and “Option B” was to “put the group into voluntary administration” in the event that “Olympus decide to play hard ball”. This email referred to a plan that Mr Fuchs as “white knight” would provide the funding to enable the Koi debt to “be purchased, released or substantially restructured (precise mechanism to be determined) fo[r] $X m- i.e. X% of $37 million” (see paragraph [80] above); and
the “X File” Email, which was sent by Mr Hooker to Mr Weir, stated that “Plan A” was that Koi “are co-operative and get paid $5.3m, ten cents (fourteen cents) in the dollar”, with the amount “to be negotiated”, while “Plan B” was that “Olympus don’t accept the shareholders offer [that is, Mr Fuchs’ offer]”, in which case the directors would appoint administrators to Empireal and other entities (see paragraph [88] above).

Dishonesty in dealings with Koi?

Following on from this issue regarding statements made by Mr Hooker to Mr Agarwal regarding his dealings with Mr Fuchs, it is convenient to address here Empireal’s submissions that Mr Hooker was, in various ways, dishonest in his dealings with Koi in the period leading up to the appointment of Administrators. That is because a conclusion that Mr Hooker had acted in such a manner would be relevant in determining whether, at that time, Mr Hooker was dishonestly pursuing a gain for himself and concealing his genuine reasons for putting Empireal, LJHRES Holdings and LJH RES into administration.
I have not attempted to address every such attack upon Mr Hooker’s credit that was made in the course of his cross-examination, but have instead focussed on the particular issues which received prominence in Empireal’s closing submissions.

Removal of slides from version of KPMG’s Project Cork Report provided to Koi

Empireal submitted that Mr Hooker “deliberately omitted critical pages” from the version of the Project Cork Report that was provided to Koi, which set out “suggested steps”, and did so in order “to prevent Koi from discovering the true nature of KPMG’s advice” (which was said to be that “the LJ Hooker Group should work with its creditors, which of course included Koi, and only contemplate placing any part of the Group into voluntary administration if agreement could not be reached with its creditors and if there were no other options available to the Group”).
The reference to the “suggested steps” slides is a reference to the two slides with this heading which are set out in paragraph [88](2)-(3) above, including the “decision tree” there shown.
I am not satisfied that these slides were removed for any dishonest purpose. Mr Hooker and the other directors were acting transparently in providing the financial analysis in the Project Cork Report to Koi. It was not misleading for this information be provided in a form that omitted KPMG’s confidential advice to the LJ Hooker Group regarding the steps which KPMG recommended be taken by the Group in the light of this analysis. It is likely that these slides were removed because of a concern that it would be adverse to the LJ Hooker Group’s interests for KPMG’s advice regarding the LJ Hooker Group’s strategy and options to be provided to a secured lender, rather than because of any attempt to deceive Koi about what that advice was.

Amendments to Gilbert + Tobin’s email of 13 May 2020

Empireal submitted that Mr Hooker dishonestly caused the 13 May 2020 advice from Gilbert + Tobin to be amended, prior to that advice being forward to Koi, in an attempt to discourage Koi from pursuing its “de-linking” proposal.
On 13 May 2020 at, respectively, 1:45pm and 2:04pm, Mr Bowden of Gilbert + Tobin sent to Mr Hooker two versions of an email setting out his advice. Mr Hooker forwarded the later of those emails to Mr Agarwal. As set out at paragraph [97] above, the only substantive difference between the text of these two emails was as follows:
the 1:45pm version (emphasis added):

“As you know, Empireal is a guarantor of the Olympus facilities. Any insolvency event in respect of any of the LJX entities would trigger a default under the Olympus facility which would entitle Olympus to (relevantly), by notice, accelerate all outstanding amounts and make a demand on Empireal for the payment of all such amounts under the Empireal guarantee. The liabilities under the guarantee would be thereafter immediately due and payable.”

the 2:04pm version (emphasis added):

“As you know, Empireal is a guarantor of the Olympus facilities. Any insolvency event in respect of any of the LJX entities would trigger a default under the Olympus facility which would enliven the payment obligation under the Empireal guarantee.

The liabilities under the guarantee would be thereafter immediately due and payable.”

Initially, it was put to Mr Hooker in cross-examination that he had created the second version of the email, by amending the text of Mr Bowden’s email and by changing the time stamp for this email (so that it appeared as if the email was received by Mr Hooker in the course of a 2:00pm telephone call with Mr Agarwal). This line of cross-examination was pursued in circumstances where Mr Hooker had not discovered any copy of an email sent at 2:04pm from Mr Bowden.
Before Mr Hooker’s cross-examination resumed the next day, Mr Hooker’s solicitors sought leave, which I granted, to file in Court and read an affidavit attaching a copy of Mr Bowden’s 2:04pm email to Mr Hooker, which had been obtained overnight from Mr Bowden.
As a result, Empireal did not maintain any allegation that Mr Hooker had himself created the 2:04pm version of the email. However, Empireal pursued, in cross-examination and submissions, a variant of this contention. In particular, Empireal put to Mr Hooker that, upon reading the 1:45pm version of Mr Bowden’s email, and seeing that it set out the correct position (namely, that Empireal’s liabilities as guarantor under the Koi Facility would only become due and payable upon Koi issuing a notice to accelerate the Loan), Mr Hooker asked Mr Bowden to change his advice and omit the critical step of Koi needing to issue a notice and accelerate the loan before Empireal’s liabilities were enlivened (and Mr Bowden complied with this request, resulting in the 2:04pm email).
Empireal submitted that Mr Hooker was acting dishonestly by making this request to Mr Bowden, and was seeking “deliberately to keep Mr Agarwal in the dark as to the true circumstances in which Empireal would become liable for the Koi Loan”.
Empireal made it clear that it was not advancing any allegation of dishonesty against Mr Bowden (but left unexplained why, on its case, Mr Bowden would have agreed to Mr Hooker’s request to change Gilbert + Tobin’s advice to express a view that was legally incorrect).
I do not accept Empireal’s submissions regarding the two versions of the 13 May advice. It is implausible that Mr Hooker would have sought to mislead Mr Agarwal in this way. Mr Agarwal was well aware of the terms of the Koi Facility, and Mr Hooker would have known that this was the case. It does not make sense that Mr Hooker would have sought to mislead Mr Agarwal as to the circumstances in which Empireal became obliged to pay moneys to Koi, or as to the need to issue a notice before payments were accelerated under the Koi Facility.
It is more likely that:
Mr Hooker, on reading the 1:45pm version, saw that it contained a statement that, in circumstances where an insolvency event occurred in relation to LJX, Koi would be entitled to issue a notice accelerating all outstanding amounts under the Koi Facility and demanding payment from Empireal;

Statements made in course of 10 June 2020 telephone call

Empireal submitted that Mr Hooker made a number of knowingly false statements in his telephone conversation with Mr Agarwal on 10 June 2020, following the passing of VA Resolutions.
First, Empireal submitted that Mr Hooker falsely told Mr Agarwal that “he had spoken to Mr Fuchs in the morning of 10 June 2020, which did not occur”. I have addressed, and rejected, this submission at paragraphs [359]-[363] above.
Secondly, Empireal submitted that Mr Hooker “pretended not to have spoken to ICG saying ‘we wanted to call you first’ when in fact Mr Hooker had been in negotiations with ICG since 25 May 2020”. It is important to have regard to the full statement made by Mr Hooker, which was in two parts, and which was interrupted by a comment from Mr Agarwal:

“[Mr Hooker]: Well we have to have a conversation with ICG. So, we wanted to call you first.

[Mr Agarwal]: Right.

[Mr Hooker]: ‘Cause they’ve been asking what’s happening with LJX and Michael [Fuchs], so I think, um –

[Mr Agarwal]: So I think you should be open with them. I think you should tell them that this is what it is. I think it looks like as far as the technology platform is concerned, I think that is going to VA.”

In this part of their telephone call, Mr Hooker was informing Mr Agarwal that ICG had been asking whether Mr Fuchs would be proceeding with an investment in LJX (which, as noted in the 18 May Advice, depended on his reaching an agreement with Koi regarding the Koi Facility). Mr Hooker was indicating to Mr Agarwal that, before he gave an update to ICG about these matters (to the effect that Mr Fuchs would not be making any offer to Koi and therefore LJX would need to go into voluntary administration), he wanted first to call Mr Agarwal to let him know that this was Mr Fuchs’ position. Further, it is apparent that Mr Agarwal understood that this is what Mr Hooker intended to convey, since Mr Agarwal responded that Mr Hooker should tell ICG that, as a result of Mr Fuchs’ indication, “the technology platform … is going to VA”.
Thirdly, Empireal submitted that Mr Hooker was “untruthful” because he “presented the idea for placing Empireal, LJHRES Holdings and LJH RES into voluntary administration as Mr Fuchs’ idea when the documents show that it was Mr Hooker’s idea”. In support of this submission, Empireal referred to the “For Your Eyes Only” Email.
In the “For Your Eyes Only” Email, Mr Hooker informed Mr Fuchs that the appointment of voluntary administrators was a “Plan B”, which would only be pursued by the directors in the event that a deal was not reached between Mr Fuchs and Koi in relation to the Koi Facility (which was “Plan A”).
The “For Your Eyes Only” Email therefore does not undermine Mr Hooker’s account to Mr Agarwal of his discussion with Mr Fuchs, but instead provides a likely reason why Mr Fuchs, having told Mr Hooker and Mr Weir that Plan A was unable to be achieved (because he was not going to make an offer to Koi), went on to say that the directors would therefore need to proceed with Plan B (and appoint voluntary administrators).
Fourthly, Empireal submitted that Mr Hooker’ statement to Mr Agarwal that voluntary administration was “not the outcome I wanted” was “untruthful” because “it was precisely what [Mr Hooker] wanted because it enabled him to effect the restructure which gave him ownership of the LJ Hooker Group for nominal consideration free of the Koi debt”. I also reject this submission. The contemporaneous documents make clear that placing Empireal and other entities within the LJ Hooker Group into voluntary administration was a Plan B / Option B. The Project Cork Report explained why this was not the preferred outcome, including because of the risk of brand damage, the potential to destabilise trading operations, and the potential to destroy goodwill value (see paragraph [88(4)] above).

Mr Hooker’s evidence regarding the “Reasons” Document

In his affidavit, Mr Hooker gave the following evidence regarding the circumstances in which the “Reasons” Document came to be prepared:

“On the morning of 10 June 2020 I attended [a] series of board meetings with Mr Heathcote, Mr Weir and Mr Bowden (who was invited) at which resolutions were passed to place Empireal, LJHRES Holdings, LJH RES, LJX and LJX Holdings into voluntary administration… Prior to the passing of the resolutions, Mr Heathcote, Mr Weir and I discussed the reasons why we considered that the companies were insolvent or likely to become insolvent. During the course of the meetings I said that I would write out for the purpose of inclusion in the formal minutes the reasons that we had referred to in the meetings for placing the companies into voluntary administration and provide those to Mr Bowden who I understood would be preparing the formal documentation.”

Empireal submitted that this evidence was “demonstrably false”. In particular, Empireal noted that, according to the minutes of the relevant board meetings, those meetings occurred at intervals of two minutes, such that all of the matters in the “Reasons” Document “could not have been discussed during the meetings”.
I accept that the “Reasons” Document does not record the terms of a discussion that occurred at the meetings on 10 June 2020 (and, in closing submissions, Mr Hooker did not contend otherwise).
However, I am not satisfied that Mr Hooker’s affidavit evidence as to these matters was deliberately false. Given Mr Hooker’s frank acknowledgement in cross-examination that he did not have any recollection of what was said at these meetings, it is more likely that his affidavit evidence regarding the “Reasons” Document was a reconstruction, based on the contemporaneous documents and, in particular, based on:
the minutes for each of the board meetings of 10 June 2020, which stated that the directors had formed the opinion as to insolvency “due to the reasons discussed at the meeting”; and
the email which Mr Hooker sent to his fellow directors on 10 June 2020, following those board meetings, which was headed “Reasons [for] putting the various entities into VA for minutes” (and which set out the first draft of the “Reasons” Document).
The substance of Mr Hooker’s evidence, as set out above, was that the directors (being Mr Hooker, Mr Weir and Mr Heathcote) had discussed, prior to the passing of the VA Resolutions, “the reasons why we considered that the companies were insolvent or likely to become insolvent”, and that Mr Hooker undertook to prepare a document after the meetings which set out those reasons. This evidence is consistent with a scenario in which the directors:
discussed, prior to the relevant board meetings being held, the reasons for placing the Appointment Entities into voluntary administration (in the event that no deal was able to be reached between Mr Fuchs and Koi);
confirmed at the board meetings that they were of the opinion that each of the Appointment Entities was insolvent or was likely to become insolvent at some future time, by reference to the reasons which they had previously discussed; and
passed the VA Resolutions at the board meetings and agreed that their reasons for forming this opinion would be reduced to writing.
Consistently with this scenario, the first draft of the “Reasons” Document referred to matters which had been the subject of multiple communications involving Mr Hooker and his fellow directors. By way of example only, the first few matters referred to in the “Reasons” Document are as follows:
the failure by LJX Holdings to make the 2019 Repayment on 10 February 2020 and to pay interest due under the Koi Facility;

“HIS HONOUR: Isn’t it really your case. It’s not your case that they didn’t have any reason for doing this. It’s your case that they had a reason that's different to the stated reason.

[SENIOR COUNSEL FOR EMPIREAL]: Yes.”

The critical issue, therefore, is not whether statements to the effect of those recorded in the “Reasons” Document were made at the board meetings, but whether the matters recorded in the “Reasons” Document are “contrived” and do not represent the “genuine” reasons for the passing of the VA Resolutions.
I will address this issue by reference to the version of the “Reasons” Document that is the focus of Empireal’s pleading (see FASOC, [60]), namely, the version headed “Board Discussion prior to Appointment of VA”, which is attached to Mr Hooker’s email to Mr Heathcote and Mr Weir on 12 June 2020 (see paragraphs [158]-[159] above).
As noted above, in sending this version of the “Reasons” Document to Mr Weir and Mr Heathcote, Mr Hooker asked them to review it and verify that they were “happy” with its contents, “as they are board minute details people will go over later”. Mr Heathcote subsequently provided some minor additions in mark-up, which were incorporated in the version that was sent to Gilbert + Tobin (see paragraphs [160]-[161] above).

“Reasons” Document – Statements about LJX and LJX Holdings

The directors of LJX Holdings and LJX were Mr Hooker and Mr Weir.
The “Reasons” Document contained the following statements regarding the reasons for placing these entities into voluntary administration:

“LJX Holdings Pty Ltd

As borrower under the Olympus Facility, LJX Holdings is in arrears to Olympus in an amount of $4.9 million with further $700k due on 30 June. It has no way of paying the $700k interest due on 30 June, remedying the current arrears or meeting future interest payments. Nor does it have any realistic prospect of repaying or refinancing the principal amount.

LJX Pty Limited

As guarantor under the Olympus Facility, LJX is liable to remedy the LJX Holdings defaults. It also has a $1 million tax liability due end of June and is also liable for the accrued payments due to LJHRES group totalling $11 million. Without the IPG investment or a significant capital injection, it cannot meet these payments.

It has no source of income other than payments from its subsidiaries, which have been reduced to such an extent that it cannot meet salary payment obligations due on Friday 12 June 2020. The amount required to meet LJX salaries is approximately $340k.”

Empireal does not allege that the reasons stated in the “Reasons” Document for placing LJX and LJX Holdings into voluntary administration were “contrived” or did not represent the “genuine” reasons of Mr Hooker and Mr Weir for doing so. Instead, Empireal’s allegations regarding the “Reasons” Document are confined to the reasons given for placing Empireal, LJHRES Holdings and LJH RES into voluntary administration. Empireal did not, in closing submissions, advance any submission that there was no sufficient or genuine basis for the appointment of administrators to LJX and LJX Holdings.
Accordingly, the position of LJX Holdings and LJX may be dealt with briefly.
The following matters were not in dispute:
LJX Holdings had failed to make the 2019 Repayment, either when it was originally due or by the extended payment date of 10 February 2020;
the IWI investment (which was to be used, in part, to pay outstanding amounts due under the Koi Facility) had failed to materialise;
LJX Holdings did not have any realistic prospect of repaying or refinancing the principal amount of the Koi Facility (which was due on 31 March 2021); and
LJX had guaranteed LJX Holdings’ liabilities under the Koi Facility.
These were all matters that had been the subject of communications between the directors prior to 10 June 2020.
Further, Gilbert + Tobin had advised, in the 18 May Advice (which was forwarded to Mr Agarwal), that the directors of LJX and its subsidiaries were “currently in a precarious position”, by reason that the IWI investment had fallen through and “the LJX group’s financial position has only deteriorated since then”. Gilbert + Tobin expressed the following view: “Given [LJX’s] cash flows, assets and liabilities, it is difficult to see how, in the absence of a substantial investment offer, the directors can resist appointing an administrator in the near term” (see paragraph [107] above).
In the light of those matters, I am satisfied that the “Reasons” Document records the genuine reasons of the directors of LJX and LJX Holdings for placing those entities into voluntary administration.
As outlined below, the (unchallenged) determination by Mr Hooker and Mr Weir that LJX and LJX Holdings were insolvent had significant ramifications for the solvency of each of Empireal, LJH RES and LJHRES Holdings.

“Reasons” Document – Statements about Empireal

The directors of each of Empireal, LJH RES and LJHRES Holdings were Mr Hooker, Mr Weir and Mr Heathcote.
The “Reasons” Document contained the following statements regarding the reasons for placing Empireal into voluntary administration:

“Empireal Limited

As guarantor under the Olympus Facility, Empireal is liable to remedy the LJX Holdings defaults and to repay the Olympus debt. It has no income and, in the absence of surplus cash being generated by LJHRES (and remitted via LJHRES Holdings) it has no prospects of meeting its financial obligations to Olympus.”

It is uncontentious that:
Empireal guaranteed the obligations of LJX Holdings as Borrower under the Koi Facility;
LJX Holdings failed to make payments to Koi of around $5m, which remained outstanding, and this constituted an Event of Default;
there was also an Event of Default by reason of LJX Holdings being placed into voluntary administration; and
by reason of those matters, Koi was entitled to issue a notice accelerating all outstanding amounts under the Koi Facility and to demand payment from Empireal; and
Empireal did not have any prospect of meeting such a demand.
Notwithstanding those matters, Empireal submitted that the reasons set out above did not represent the genuine reasons of Mr Hooker (or of the other directors) for resolving to place Empireal into administration, including because Mr Hooker (and the other directors) were aware that:
pursuant to the terms of the Koi Facility, Empireal would not have any liability to Koi in respect of any outstanding amounts under the Koi Facility unless and until Koi issued a notice of default and demanded payment from Empireal; and
Koi had not taken any such step and instead was “supportive” of Empireal and of the LJ Hooker Group.
Empireal submitted that, given those matters (of which Mr Hooker and his fellow directors were aware), the directors did not have any rational basis to form, and did not form, the opinion that Empireal was insolvent as at 10 June 2020.

No demand had been issued by Koi

It is pleaded, and admitted, that:
Empireal only became liable to pay amounts guaranteed by it under the Koi Facility upon a demand being made (FASOC, [9]; Defence, [9]); and
as at, and up until, the appointment of the Administrators on 11 June 2020, Koi had not made any demand of Empireal to pay any outstanding amounts under the Koi Facility (FASOC [52(a)]; Defence [52(a)]).
Importantly, the resolution passed by the directors of Empireal records that they were of the opinion that “the Company is insolvent or likely to become insolvent”.
In Anchorage Capital at [255]-[256], the Court of Appeal (Ward P, Brereton JA, Griffiths AJA) noted that the administrators in that case were appointed (as here) under s 436A(1) of the Act, which provides that a company may appoint an administrator if the directors resolve that, in their opinion, “the company is insolvent, or is likely to become insolvent at some future time”. The Court observed as follows (emphasis in original):

“One of the purposes of s 436A is to enable directors to resort to it before the company becomes insolvent – and thereby to ensure that it does not trade while insolvent.”

This is consistent with the “important social purpose” served by s 588G of the Act and related provisions, namely, “to engender in directors of companies experiencing financial stress a proper sense of attentiveness and responsible conduct directed towards the avoidance of any increase in the company’s debt burden”: Woodgate at [36].
Mr Hooker and his fellow directors were aware, from the advice provided by Gilbert + Tobin in the first of their emails sent on 13 May 2020 (see paragraph [97] above), that their decision on 10 June 2020 to place LJX and LJX Holdings into voluntary administration gave rise to an event of default under the Koi Facility, wand therefore gave Koi an immediate entitlement to issue a notice accelerating the outstanding liabilities under the Koi Facility and demanding payment from Empireal.
There was no dispute that, in the event that Empireal became liable to pay the amount due under the Koi Facility, it was unable to do so. (This conclusion was supported by Gilbert + Tobin’s 13 May 2020 advice, and also by the unchallenged expert evidence of Mr Alan Walker, who was an insolvency expert called by Mr Hooker.)
Empireal contended that the matters outlined above did not give Mr Hooker and his fellow directors a sufficient or rational basis to conclude that Empireal was likely to become insolvent at some future time (namely, upon the issue of a notice and demand by Koi), because Mr Hooker and his fellow directors were aware that Koi was “supportive” of the LJ Hooker Group (including by making the “delinking” proposal and the “consensual sale” proposal) and therefore was unlikely to issue a notice accelerating the debt and a demand for repayment by Empireal. I address this issue below.

Was Koi supportive?

Empireal relied upon the fact that Koi did not, at any time before Empireal was placed into voluntary administration on 10 June 2020, issue a notice of demand or reservation of rights letter, despite LJX Holdings having failed, on 10 February 2020, to make the 2019 Repayment and to pay the outstanding interest that was due under the Koi Facility.
However, as Mr Hooker submitted, it is also true that Empireal had not extended the date for repayment of those amounts beyond 10 February 2020, and had not said anything to the effect that it had no intention of issuing a notice of default. This was deliberate. The Olympus IC memorandum of 21 February 2020 recorded that the “deal team” had recommended “not to take any enforcement action at this point but also not to provide a formal waiver of the payment default and covenant breach”, and to be “prepared to take enforcement action at short notice if we believe that equity investment [namely, the IWI investment] is unlikely” (see paragraph [61] above).
Empireal submitted that Mr Hooker’s evidence that he was of the view that Koi had a “loaded gun” was “contrived” and a “recent invention” by Mr Hooker. I do not accept this submission, for the reasons given below.
First, it was an express term of the Amendment Letter, by which Koi agreed to extend the date for payment of the 2019 Repayment, that a “failure by the Borrower to effect the 2019 Repayment, the Upcoming Interest Payment and/or the Upcoming Cash Interest by 10 February 2020 shall constitute an Event of Default for the purposes of clause 21.1 (Non-payment) of the Amended Subscription Agreement”. None of those payments was made by 10 February 2020. Accordingly, by reason of the non-payment, an “Event of Default” had occurred and was subsisting.
Secondly, on 5 March 2020, Mr Agarwal informed Mr Hooker and Mr Weir that the Olympus IC had engaged in “a robust discussion … regarding the outstanding events of default under the [Koi Facility] relating to the missed payment in February and the breach of the December net leverage financial covenant”. Mr Agarwal added that while the Olympus IC was of the view that there had been progress with the IWI discussions, there were “strong concerns” about the delay in this process, and the issue of charging “default interest” had been raised. Mr Agarwal told Mr Hooker that the Olympus IC would be meeting again when they received an update on the IWI discussions (see paragraph [64] above). This email would not have given Mr Hooker or Mr Weir any comfort that Koi was supportive and was unlikely to take any steps to enforce its security. Instead, the email suggested that the Olympus IC was actively considering whether to act upon the subsisting Event of Default.
Thirdly, Mr Agarwal did not subsequently say anything to Mr Hooker to indicate that the Olympus IC was unlikely to take any enforcement action. Instead, in May 2020, Koi had refused to provide funds to the LJX Group to allow them to meet payroll obligations. (Mr Agarwal acknowledged in cross-examination that, around this time, Koi was actively preparing for enforcement of its security and that there was a sense of urgency about being ready to take such action: see paragraphs [110]-[111] above).

Position of Empireal Holdings?

Empireal submitted that the fact that Empireal Holdings was not placed into voluntary administration (despite the fact that it was, like Empireal, a guarantor under the Koi Facility) “confirms that the board did not consider it appropriate to place companies into voluntary administration by reason of their status as a guarantor of LJX Holdings’ obligations under the Koi [Facility]”.
However, as Senior Counsel for Mr Hooker pointed out in closing submissions, there was an important distinction between the position of Empireal and Empireal Holdings, which likely explains why it was not considered necessary to place Empireal Holdings into voluntary administration. In particular, the guarantee that was given by Empireal Holdings to Koi was a limited recourse guarantee, being limited to its shareholding in Empireal (see paragraph [27] above). Accordingly, the only practical consequence for Empireal Holdings of the guarantee being enforced would be the loss of that shareholding in Empireal.

Was Empireal in fact insolvent as at 10 June 2020?

Mr Hooker relied on an expert report of Mr Alan Walker, who expressed the opinion that Empireal was insolvent as at 10 June 2020. Mr Walker was not required for cross-examination.
Empireal submitted that Mr Walker’s opinion should not be given any weight, as it depended on “false assumptions”, namely that when the 2019 Repayment was not made by the extended date of 10 February 2020, Empireal “became liable as a guarantor of the debt”, with such amounts being “due and payable at this time due to a default”. (As noted at paragraph [418] above, it is pleaded, and admitted, that Empireal only became liable to pay amounts guaranteed by it under the Koi Facility upon a demand being made, and that, prior to the appointment of the Administrators, no such demand was made.)
Mr Hooker submitted that the Court would not reject Mr Walker’s opinion on this basis, as Mr Walker had “treated the question of solvency in the same way that the directors did, ignoring the legal technicalities and looking at the commercial reality of what that guarantee meant”.
It is not necessary to resolve this dispute. The question before the Court is not whether Empireal was in fact solvent as at 10 June 2020. Instead, the question is whether Mr Hooker (and his fellow directors) genuinely formed the opinion on 10 June 2020, on rational grounds, that Empireal was insolvent or likely to become insolvent in the future.
These are two separate enquiries (see Anchorage Capital at [256]-[257]; and Downey v Crawford [2004] FCA 1264 at [189] (Weinberg J)). Directors may act consistently with their duties in forming the relevant opinion and resolving to place a company into administration pursuant to s 436A of the Act, even though it is subsequently established (on, for example, an application pursuant to s 447A to end the administration) that the company is, in fact, solvent.

Conclusion

For the reasons given above, I am satisfied that, as at 10 June 2020, Mr Hooker and his fellow directors genuinely held the opinion, on rational grounds, that Empireal was insolvent or was likely to become insolvent in the future, and that their reasons for voting in favour of a resolution to place Empireal into voluntary administration were as recorded in the “Reasons” Document.

“Reasons” Document – Statements about LJH RES

The “Reasons” Document includes the following statements regarding LJH RES:

“LJHRES Limited

LJHRES’s operating subsidiaries have experienced a significant reduction in operating cashflow and are forecasting further reductions. In addition, the impairment of accrued payments due from LJX will result in a significant write down in EBITDA, placing LJHRES in default of its borrowing ratios under the ICG facility. LJHRES has no reasonable prospect of remedying its default.

LJHRES is required to make a payment of principal and interest to ICG totalling $2.1 million on 30 June 2020 and owes the ATO approximately $3.8 million under a payment plan which expires on 30 June 2020. It does not have the funds to make either payment. LJHRES will also be unable to pay the September 2020 interest payment to ICG of $550k.”

As set out above, there are four main matters to which reference was made in respect of LJH RES.

Reduction in cash flow

The first matter was that the operating subsidiaries of LJH RES had experienced a significant reduction in operating cash flow and were forecasting further reductions.
Empireal did not, in its closing written submissions, dispute the accuracy of this statement. It is supported by the forecasts which had been prepared by PwC in late April 2024 (and had been forwarded by Mr Heathcote to Koi), and which showed significant and ongoing negative cash flow.

Breach of borrowing ratio covenant

The second matter was that the impairment of accrued payments due from LJX would result in a significant write down in LJH RES’s EBITDA, which would place LJH RES in default of the borrowing ratio covenant in the ICG Facility, with no reasonable prospect of remedying its default.
Empireal did not dispute that there would be such a default, or that LJH RES had no prospect of remedying it. However, Empireal submitted that the significance of any such default would depend on the attitude of ICG, and that ICG was supportive of the LJHRES Group.
Mr Hooker was cross-examined on this issue at some length. An extract is set out below.

“Q. But the significance of a breach of an EBITDA covenant depended on the action that ICG took in response to such a breach. Correct?

A. No, because it's all about what happens when you need to refi[nance] in December 2020. So you can't refi[nance]. So ICG could do a bunch of things, but regardless, you can't refi[nance] because you're a ten times senior. I think that's more of the one of the elements to that. So there's two components: you're a current senior, and then what you do at the end of this senior to get new senior in.

Q. Just dealing with the current senior. I think the significance of a potential breach of an EBITDA multiple depended upon the action, if any, that ICG took in response to it. Correct?

A. But it's in the loan document, so. It was over two and a half times, so. You mean if they forgave their loan 100% and there was no refi[nance]?

Q. No, Mr Hooker. I'll try and take it step by step. There's a reference to an EBITDA covenant. That's in point number 4. You see that?

A. ICG covenant threshold 2.5 times.

Q. I think what's implied here is that there was a potential for a breach of that covenant.

A. Yes.

Q. You'd accept that that's a fair characterisation of what's in paragraph 4? You see that?

A. Yes.

Q. Without going through the ICG facility in great detail, let's assume for the sake of this line of questioning that a breach of the EBITDA covenant is an event of default under the ICG facility. Do you understand that assumption?

A. Yes.

Q. What I'm putting to you is: the significance of that event of default for LJHRES would depend upon the action that ICG took in relation to it.

A. It depends on the directors' view on if it's a going concern, because a refi[nance] was around the corner. So it would the ICG can do things which they could but it would this scenario still has an impact on [LJH] RES regardless of what ICG does. Unless they roll the debt out forever and don't want to call it, then it's not a going concern. Can't refinance.

Q. Mr Hooker, in terms of the refinance, that was a point in the future; correct?

A. I think it says here December 2020.

…

Q. You understood that ICG was supportive of the LJ Hooker Group; correct?

A. Yeah, because they made a loan to it.

Q. They were supportive at this point in time as well; correct?

A. I don't know. I mean, they're always protecting their own interests because they're a senior lender. So supportive by a bank is not like family supportive. It's supporting investors, they can recover funds, maximising their funds recovery. So I don't know what supportive means.

Q. I think what your evidence is, Mr Hooker, is that you accept they were supportive as a bank but not as a family member. Is that a fair characterisation?

A. They were supportive to the degree where it would maximise the outcome for their stakeholders. Correct.”

Empireal submitted that Mr Hooker “would not accept the obvious proposition that a breach of an EBITDA covenant depended on the attitude of ICG” and gave “a different unresponsive answer” each time this was put to him. Empireal submitted that the Court should find that “Mr Hooker’s answers were untruthful and designed to mislead the Court”.
I reject this submission. There was nothing dishonest or evasive about Mr Hooker’s responses to these questions.
Insofar as Mr Hooker pointed out – in response to suggestions that ICG was “supportive” of the LJ Hooker Group – that ICG was supportive so long as it was in its stakeholders’ interests to be supportive, Empireal acknowledged in its submissions that this qualification “may be accepted”.
I accept that ICG had made some statements, in March 2020, that it was “supportive” of the LJ Hooker Group (see paragraphs [71] and [73] above). Those statements were made at an early stage in the COVID-19 pandemic. From then until June 2020, there were extended lockdowns in much of Australia. Mr Hooker noted in the first draft of the “Reasons” Document that, since the commencement of the lockdowns in March 2020, “sales volume in the LJ Hooker franchise network have decreased by c. 50% and at the end of May more than 200 franchise offices were 60+ days in arrears (40% of the network total)”. In this highly uncertain and evolving economic environment, statements of “support” at an earlier point in time were of limited significance. For example, whereas IWI had been looking at investing $20m into the LJX Group in March 2020, and had completed satisfactory due diligence, it had, by 5 May 2020, indicated that, due to the pandemic, it no longer had any interest in this investment.
In submitting that Mr Hooker was aware that ICG was “supportive”, Empireal pointed out that ICG was willing, in the Restructuring Support Deed, to amend the ICG Facility so as to remove the debt ratio covenant altogether. However, ICG was willing to make that amendment in circumstances where there was a further investment by Mr Fuchs in the LJHRES Group, with such moneys being paid in reduction of the ICG Facility. This does not provide a basis to conclude that ICG would have been, absent such investment and payment (which would only occur in the event of a restructure of the Group), willing to remove the debt ratio covenant or waive any default in respect of that covenant.
Further, Mr Hooker explained, in the passage of cross-examination quoted at paragraph [465] above, why he would not accept the proposition that the significance of the breach of the borrowing ratio covenant was wholly dependent on ICG’s attitude. In particular, he explained that the ICG Facility was due to mature in December 2020 and that the failure to maintain the required borrowing ratio would preclude refinancing of the ICG Facility, which LJH RES could not repay.
Empireal did not, in its submissions, advance any reasons why Mr Hooker’s stated concerns about LJH RES’s inability to refinance or repay the ICG Facility upon its maturity should be rejected, or were not valid concerns as at 10 June 2020.

“Forecast leverage ratio for the ICG debt would be 9x – 17x around the time of the end of [the] debt term, December 2020. The forecast will need to be revised to the downside based [on] need to increase staff salaries. No chance to refinance.”

In addition, Mr Hooker noted in the first draft of the “Reasons” Document that since the COVID-19 pandemic “kicked in”, “the two listed agency comparables, McGrath Ltd and The Agency Ltd, have seen their share price down 40% and 42% respectively” and that The Agency had been unable to refinance its debt with Macquarie Bank that was due in March 2020. Similarly, in the “For Your Eyes Only” Email, Mr Hooker stated that the impact of the COVID-19 pandemic had “destroyed any hopes of market recovery or refi[nance] in 2020”.

Upcoming payments of interest

The third matter referred to in the “Reasons” Document is that LJH RES was required to make a payment of interest and principal to ICG, in the amount of $2.1m on 30 June 2020 and a further payment of interest in the amount of $550,000 in September 2020, and did not have funds to make either payment. Empireal did not dispute that these amounts were due to be paid, but said that:
the practice in the past (as Mr Hooker accepted in cross-examination) had been that LJ Hooker Corporation, which was generating revenue and was cash flow positive, made principal and interest payments to ICG on behalf of LJH RES; and
LJ Hooker Corporation did in fact subsequently make the June 2020 payment on behalf of LJH RES.
In this regard, Empireal relied on an email from Mr Heathcote to ICG on 3 July 2020, which included the following statement in respect of LJH RES’s intercompany balances:

“Owes $8,123,738 to LJ Hooker Corporation Ltd for amortisation payments and interest paid on its behalf to ICG. During June this amount increased for interest paid to ICG on behalf of LJH RES Ltd.”

It is not clear from this statement, which refers to an (unquantified) amount of “interest paid to ICG” during June 2020, whether LJ Hooker Corporation paid the whole, or part, of the amount of $2.1m that was required to be paid to ICG for “principal and interest” by 30 June 2020. Empireal did not point to any evidence of the quantum of any payment made by LJ Hooker Corporation to ICG in June 2020. (The journal extracts attached to Mr Heathcote’s email include a balance sheet for LJH RES’s intercompany loan to LJ Hooker Corporation, which does not refer to any payments being made after 30 April 2020.)
Even assuming that LJ Hooker Corporation did pay the whole of the amount of principal and interest that was due by 30 June 2020, this would not establish that the concern expressed in the “Reasons” Document that funds would not be available for this payment was not a genuine concern as at 10 June 2020. In particular, as noted above, Empireal did not dispute, in closing submissions, the proposition in the “Reasons” Document that, as at 10 June 2020, LJH RES’s operating subsidiaries (which included LJ Hooker Corporation) “had experienced a significant reduction in operating cash flow and were forecasting further reductions”.

Amount owing to ATO

The fourth matter referred to in the “Reasons” Document was that LJH RES “owes the ATO approximately $3.8 million under a payment plan which expires on 30 June 2020” and “does not have the funds” to make this payment.
I accept Empireal’s submission that this statement is incorrect, in that:
according to the Project Cork Report, the amount of $3.8m represented the total tax liabilities of the LJ Hooker Group (including the New Zealand entities), rather than the tax liabilities of LJH RES itself, with the largest share of those liabilities being owed by LJ Hooker Corporation; and
it is admitted on the pleadings that, as at 11 June 2020, prior to the appointment of the Administrators, the ATO was prepared to defer the obligations of entities within the LJ Hooker Group to pay PAYG tax and GST until 30 September 2020 (FASOC, [54]; Defence, [54]).
However, I do not accept Empireal’s submission that Mr Hooker gave “untruthful” evidence when he gave the following answers in cross-examination:

“Q. Mr Hooker, you understood at the time that the ATO was prepared to defer those tax obligations until 30 September 2020, didn't you?

A. I don't know. I can't recall what I understood at the time.

Q. You understood that this was in fact a tax obligation of LJ Hooker Corporation; correct?

A. I don't know where ‑ which entity pays the tax in the LJ Hooker Group.”

It is understandable that Mr Hooker was unable to recall, more than five years after the event, the respective tax obligations of particular entities within the LJ Hooker Group. Further, in these answers, Mr Hooker did not dispute the proposition that the ATO was prepared to defer the tax obligations to 30 September 2020, but simply indicated that, unsurprisingly, he could not, as at December 2025, recall precisely what he understood about those matters as at 10 June 2020.
It is likely that the incorrect statements made in the “Reasons” Document about LJH RES’s obligations to the ATO were the result of error, rather than deliberate misstatement. There was plainly uncertainty as amongst the directors of LJH RES about the precise extent of the tax liability, with different drafts of the “Reasons” Document referring to a liability of $2m, which was then changed to $3.8m, and then amended (in the version sent to Gilbert + Tobin) to $3m.

Conclusion

Putting to one side the statements regarding the ATO, I am satisfied that the other matters stated in the “Reasons” Document in relation to LJH RES provided a rational basis for Mr Hooker and the other directors to form the opinion, as at 10 June 2020, that LJH RES was insolvent or likely to become insolvent, and that they did genuinely form such an opinion on that date based on those matters. I therefore reject Empireal’s contention that the matters stated in the “Reasons” Document were “demonstrably false” and do not represent the genuine reasons of Mr Hooker and the other directors for resolving to place LJH RES into voluntary administration.

“Reasons” Document – Statements about LJHRES Holdings

The “Reasons” Document includes the following statements regarding LJHRES Holdings:

“LJHRES Holdings

LJHRES Holdings is a guarantor of the ICG Facility. The borrower under the ICG Facility (LJHRES) is insolvent. LJHRES’ holding company, Empireal Limited, is also insolvent. LJHRES Holdings has no source of income or capital other than through one of these entities. With both insolvent, LJHRES Holdings has no prospect of meeting its obligations under its guarantee.”

In short, by reason that LJHRES Holdings had guaranteed LJH RES’s obligations under the ICG Facility, the directors’ conclusion that LJHRES Holdings was insolvent or was likely to become insolvent in the future was based on, and followed from, their similar conclusion regarding LJH RES.
Empireal made three main submissions as to why the Court should conclude that these did not represent the genuine reasons of the directors (including Mr Hooker) for placing LJHRES Holdings into voluntary administration.
First, Empireal submitted as follows (emphasis added): “the proposition that LJHRES Holdings had current obligations under the ICG Facility as at 10 June 2020 is contrary to Mr Hooker’s admitted position in this proceeding” (namely, that LJHRES Holdings did not, prior to the appointment of the Administrators, have any such obligation under its guarantee).
However, the “Reasons” Document did not state that LJHRES Holdings had any such “current obligations”. Instead, the “Reasons” Document was forward-looking, stating that LJHRES Holdings “has no prospect of meeting its obligations under its guarantee”. Empireal did not dispute the proposition that, as at 10 June 2020, LJHRES Holdings would be unable to meet any demand that was made under the ICG guarantee.
Secondly, Empireal submitted that Mr Hooker was aware that ICG was “supportive” of the LJ Hooker Group. I have already addressed this submission above, when dealing with the position of LJH RES.
Thirdly, Empireal noted that, although LJ Hooker Corporation and certain other operating entities in the LJHRES Group were, like LJHRES Holdings, guarantors of the ICG Loan, none of those other entities was placed into voluntary administration, and submitted that this fact:

“further confirms that the board did not place LJHRES Holdings into voluntary administration by reason of its status as a guarantor of the ICG facility, contrary to the explanation provided in the [“Reasons” Document].”

Empireal submitted that Mr Hooker refused to accept, in cross-examination, “the obvious proposition that as guarantors of the ICG [Facility], LJHRES Holdings was in no different position to LJ Hooker Corporation or LJ Hooker Pty Ltd”; that he gave “obfuscatory evidence” and “no satisfactory response” to the proposition that, if he thought that LJHRES Holdings was insolvent by reason of the ICG guarantee, then the same would follow for the other entities; and that the Court should therefore find that the stated reasons for placing LJHRES Holdings into administration were “confected”.
I reject these submissions. The relevant passage of Mr Hooker’s cross-examination included the following questions and answers:

“Q. Mr Hooker, I’ll put it to you squarely, the reason given under the heading LJHRES Holdings did not represent your genuine reason for placing LJHRES Holding into voluntary administration, did it?

A. Not correct.

Q. It is a false reason, isn’t it?

A. Not correct.

Q. Because if this had been the genuine concern, you would have placed the other guarantors into voluntary administration as well, correct?

A. Not correct. One of the reasons was just to protect the name and the brand, the fallout would have been worse further down the chain with the Hooker name in it, but that was one of many reasons.

Q. So, Mr Hooker, you didn’t have a genuine belief that LJHRES Holdings was insolvent, did you?

A. Not correct.

Q. And you’ve said that you didn’t put the other companies down the chain into voluntary administration to protect the name, the brand name, that’s your evidence?

A: No, it’s not, it’s one of the many reasons, that’s just one that I can recall off the bat, that’s why it was easy for me to say there’s that bifurcation of the name. Structurally, that’s how I could remember it.”

The contemporaneous evidence establishes that Mr Hooker had a genuine concern, as at 10 June 2020, that placing any of the operating entities in the LJHRES Group into voluntary administration would cause brand damage, as each of those entities (unlike the entities which were placed into voluntary administration) bore the “LJ Hooker” name. For example:
on 3 May 2020, Mr Hooker stated, in the “X File” Email to Mr Weir, that there would “be less fall out in media maybe” if the entities put into voluntary administration “don’t have the LJ Hooker name in them”;
on 3 June 2020, Mr Hooker stated in his email to Ms Dickson that “Brand Risk” to the Group was mitigated by the fact that “[t]he entities going into VA are holding companies that do not have the LJ Hooker name in them” (see paragraph [144] above); and
on 10 June 2020, Mr Hooker stated, at the commencement of his telephone conversation with Mr Agarwal about the appointment of the Administrators, that no appointments were being made to any companies which included the “Hooker” name “because … we think we can minimise the PR and brand damage if they don’t have the Hooker name in it” (see paragraph [166] above).
This is an important point of distinction between, on the one hand, the position of LJHRES Holdings and, on the other, the position of LJ Hooker Corporation and the other operating entities within the LJHRES Group (all of which included “LJ Hooker” in their name).
There were further points of distinction between these entities. In particular:
unlike the various operating entities in the LJHRES Group, LJHRES Holdings had no assets other than its shareholding in LJH RES (which was the borrower under the ICG Facility); and
the proposed restructure (being the one contained in the document provided by Gilbert + Tobin to Mr Weir and Mr Hooker on 1 June 2020, see paragraphs [133]-[136] above) involved BidCo acquiring the shares in LJH RES that were held by LJHRES Holdings, which would have the result that the operating entities would also become subsidiaries of BidCo, with further equity being injected into the LJHRES Group and the ICG Facility being amended. There was no need for any of the operating subsidiaries in the LJHRES Group to be placed into voluntary administration for this restructure to be effected.
For those reasons, I reject Empireal’s contention that the matters stated in the “Reasons” Document were “demonstrably false” and did not represent the genuine reasons of Mr Hooker and the other directors for resolving to place LJHRES Holdings into voluntary administration.
I am satisfied that the matters stated in the “Reasons” Document provided a rational basis for Mr Hooker and the other directors to form the opinion, as at 10 June 2020, that LJHRES Holdings was insolvent or likely to become insolvent in the future, and that they did genuinely hold such an opinion on that date based on those matters.

Mr Hooker’s interest in the restructure of the LJ Hooker Group

Empireal contends that, in voting in favour of the VA Resolutions, Mr Hooker’s purpose was to obtain a personal benefit from the restructure of the LJ Hooker Group, namely, to obtain ownership of the LJHRES Group for nominal consideration free of the Koi debt.
In assessing whether Mr Hooker was acting for this improper purpose, it is relevant to have regard to the evidence regarding the nature and value of Mr Hooker’s interest in the proposed restructure, and regarding Mr Hooker’s understanding of those matters at the time. If the evidence establishes that Mr Hooker believed or understood that he stood to gain a substantial personal benefit from the restructure, then that is a matter that may support an inference that he was acting for the purpose of obtaining this benefit. If, however, the evidence establishes that there was no reason for Mr Hooker to believe, at the relevant time, that he would have more than a nominal interest in the restructure, it is less likely that he would have dishonestly exercised his powers as a director for the purpose of securing this benefit for himself.
As a starting point, it is common ground that, as a result of the restructure, Mr Hooker became the beneficial owner of the sole share in the ultimate holding company of the entities in the LJHRES Group which operate the Core Business. In particular:
following the restructure, MF LJH Investment held 100% of the shares in each of LJH RES and LJ Hooker Ltd (with LJ Hooker Ltd owning 100% of the shares in LJ Hooker Corporation, which in turn owned six subsidiaries which operated the Core Business); and
the ultimate holding company of MF LJH Investment was MF LJH Nominees (the sole share in which has been held, at all times, on trust for Mr Hooker).
Further, it is common ground that MF LJH Investment obtained its 100% shareholding in LJH RES for $1.00.
As has been explained above, the restructure that was in fact implemented is consistent with the restructure that was proposed in the Restructuring Support Deed that was entered on 11 June 2020 (see paragraph [182]ff). Although the identity of BidCo changed (namely, from L.J. Hooker Investments to MF LJH Investment), and the precise corporate structure changed, it remained the case that BidCo, of which Mr Hooker was the ultimate beneficial owner, was purchasing the shares in LJH RES for $1.00 and was obtaining ownership of the operating entities in the LJHRES Group.
Empireal submitted that Mr Hooker conceded that this restructure conferred a benefit on him personally and, in that regard, referred to the following passage of cross-examination:

“Q. The consensual restructure as contained in this options paper involved ICG consenting to a transaction that had the following elements, (1) your special purpose vehicle would buy [LJH]RES for a dollar, agreed?

A. Yes.

Q. Some money would be contributed by Mr Fuchs to LJHRES once it had been sold, correct?

A. Yes.

Q. And third, that money being paid to ICG, agreed?

A. Yes.

…

Q. And that involved ownership of all of the operating entities, correct?

A. Correct.

Q. And you would acquire all of that for a dollar via your special purpose vehicle, correct?

A. Correct.

Q. That was a benefit for you, wasn't it?

A. Well, if you look deeper into the structure, there's benefit there, but it's pretty complicated.

Q. You don't need to look very far in the structure, you're getting, ownership of [LJH]RES and all of its subsidiaries for a dollar, aren't you?

A. Correct, but‑‑

Q. And that's to your benefit, isn't it, Mr Hooker?

A. That is.”

As the opening question of this passage of transcript indicates, this series of questions was about a form of restructure which was not in fact implemented, namely, a restructure through a consensual sale (which was described in the relevant Gilbert + Tobin document as “Option 1”), rather than a restructure in a voluntary administration (which was described as “Option 2”): see paragraph [136] above.
The passage of cross-examination in which Mr Hooker was taken to the Restructuring Support Deed and asked about its key elements is as follows (emphasis added):

“Q. So, in terms of the key elements, the shares in LJHRES being acquired from LJHRES Holding for a dollar, agreed?

A. Bid Co, [LJH]RES Holdings in [LJH]RES, a dollar, correct.

Q. And that, Mr Hooker, is ultimately what occurred, but as you say, with a different entity, correct, but also owned by you?

A. Yes.

Q. And that enabled you to acquire LJHRES and its operating subsidiaries for a dollar, correct?

A. Correct.

Q. You obviously had a personal interest in that, agreed?

A. Well, the [DOCA] process is sort of, as I said, it's out of our hands, so it went to a process and the creditors voted with the administrator that that was the best deal, and so they took it.

Q. Is the answer to my question yes, that conferred a benefit on you?

A. The outcome?

Q. The outcome, yes.

A. Hmm, interesting. Well, it's completely out of the money, so no benefit now, maybe one day.

…

Q. Let me approach it another way. You had an interest, Mr Hooker, in, a personal interest in the acquisition of the LJHRES entity, correct?

A. I owned the one share in it, correct.

Q. And the transaction conferred on you ownership of LJHRES and its operating subsidiaries, agreed?

A. Yes, I needed to own that entity in order to keep the structure together.

…

Q. Mr Hooker, the transaction caused you, via the corporate structure, to own LJHRES, correct?

A. Yes.

Q. And you obtained ownership of LJHRES without being subject in any way to the Koi debt, agreed?

A. That structure meant that the Koi debt was not in the structure.

Q. Yes, so is the answer to my question yes, you acquired ownership of LJHRES without being subject in any way to the Koi debt, you agree with me, don't you?

A. The ‑ as part of the [DOCA] process I ended up owning the share that owned the LJ Hooker group.

Q. And your ownership was not subject in any way to the Koi debt?

A. No, that was a precondition that the Koi debt was resolved.

Q. But, okay. Whether or not it was a precondition, you agree with me that you acquired ownership of LJHRES and its operating subsidiaries without being subject to the Koi debt, do you agree with that?

A. Correct, it was removed from the group.”

Mr Hooker conceded that the outcome of the restructure was that he was the sole beneficial owner of “the share that owned the LJ Hooker Group”, but did not concede that he understood that this conferred a benefit of any substance on him personally, by reason that it was “completely out of the money”.
Each of the parties led expert evidence regarding the value, as at 10 June 2020, of the shares in LJH RES and LJ Hooker Ltd (both of which became wholly owned by MF LJH Investment). I address below this valuation evidence, when dealing with the issue of quantum.
In particular, the experts have expressed opinions on the valuation of the shares in a number of entities in the LJ Hooker Group, based on the information provided to the experts. This expert evidence goes to the question of the value of the benefit that Mr Hooker in fact received from the restructure.
However, the issue I am presently considering is whether Mr Hooker perceived, at the relevant time (namely as at 10 June 2020, when the VA Resolutions were passed), that his beneficial interest in BidCo would be, following the restructure, of substantial, or only nominal, value. His perceptions at the time are relevant to an assessment of whether he was acting for the purpose of obtaining this benefit, and an assessment of the likelihood that he engaged in serious dishonest behaviour (including “confecting” reasons for placing Empireal, LJHRES Holdings and LJH RES into voluntary administration) in order to achieve that purpose.
The Project Cork Report provided KPMG’s estimate of the value of the assets of the LJHRES Group that were available to the secured creditor (namely, ICG). According to KPMG’s analysis, the estimated realisable value of those assets on a “low” case scenario was $10.45m, and on a “high” case scenario was $40.80m.
As the Project Cork Report noted, the amount of ICG’s debt was $38m, such that there would be, on the “high” case, some $2.80m available in LJH RES after assets were realised and the ICG debt was repaid in full. However, any such amount would not be available to be distributed or paid by way of dividend to LJH RES’s shareholder (LJHRES Holdings), as the LJHRES Group also had (according to KPMG’s analysis) around $7.11m of unsecured creditors, including trade creditors of $1.71m and statutory liabilities in respect of PAYG and GST in the amount of some $2.38m. Those matters supported a conclusion that the value of the equity in LJH RES was nil.
Empireal referred to KPMG’s statement that, in determining the value of the intangible assets of the LJHRES Group, “a normalised EBITDA of $9.2m” had been adopted, and submitted that this undervalued those assets because the experts in this proceeding had agreed that the normalised EBITDA was $12.5m. However, for the purposes of assessing what information regarding value was available to Mr Hooker as at 10 June 2020, the opinions of experts in 2025 can be of little assistance. The Project Cork Report identified the basis on which the figure for normalised EBITDA had been derived. Empireal did not submit that it would have been apparent to Mr Hooker that KPMG’s figure for normalised EBITDA was not soundly based, and no such proposition was put to him in cross-examination.

“On the assumption that the market recovers to 2019 levels in the first half of 2021, LJHRES will have TTM EBITDA of $3.9 m and Run Rate EB[IT]DA $6.8 m. Based on this, the LJHRES business would be worth $35 m (TBC) based on global comparables. In April ICG wrote down their loan by 20% from $38 m to $30 m.”

This comment was written in April 2020, in the midst of the first major COVID lockdowns in Australia. Mr Hooker was expressing the view that, on the assumption that the market would recover, in July to December 2020, to the levels achieved in 2019, the LJH RES business (being the Core Business) would have a value of around $35m and that (consistently with this) ICG had reached the view that the value of their loan should be written down from $38m to $30m.
That Mr Hooker held this view in April 2020 is further supported by the fact that, when he provided Mr Weir with an (identically worded) draft of the paragraph which is quoted above, prior to sending the final version of the “For Your Eyes Only” Email to Mr Fuchs, Mr Hooker wrote, immediately below, the following query:

“Based on this why would Michael Fuchs pay anything for it. Future value?????”

That is, from Mr Hooker’s perspective, in circumstances where the value of the Core Business was around, or less than, the value of the secured debt owing under the ICG Facility, the only economic rationale to support Mr Fuchs’ proposed investment into the Core Business was its potential future value, rather than its present value.
Although Mr Hooker was cross-examined at some length about the “For Your Eyes Only” Email, it was not put to him that he did not genuinely hold, as at 24 April 2020, the views regarding the value of the LJH RES business which are set out at paragraph [515] above. Instead, Empireal’s submissions in respect of this email proceeded on the basis that Mr Hooker did in fact hold the views which he recorded regarding “global comparables” and the appropriate “EBITDA multiple”:

“You also have, for example, in the very same email that Mr Hooker sent to Mr Fuchs, where he addresses the global comparables and he applies various other discounts on the global comparables, gets an EBITDA multiple of 5.1, applies that to what he calls a run rate EBITDA of 6.8, to get to a figure of – ‘It could be worth 35, to be confirmed, based on global comparables’. He was perfectly happy to adopt those global comparables. You apply that to the correct future maintainable earnings figure, and you get a much higher value in excess of 60 million for the business, even more in excess of the ICG debt.”

It is suggested, in the submission quoted above, that the multiple nominated by Mr Hooker should be applied to a higher EBITDA, but it was not put to Mr Hooker that he appreciated, at the time, that the normalised EBITDA was in excess of the figure which he stated to Mr Fuchs (let alone that the true figure was almost twice that number).
Further, insofar as Mr Hooker considered that the potential for “future value” of the LJHRES Group provided a rationale for Mr Fuchs to invest in the Group, Mr Hooker was aware, as at 10 June 2020, that Mr Fuchs was proposing to invest further money into the LJHRES Group, following the transfer of the shares in LJH RES to BidCo, on the basis of a convertible loan agreement. Mr Hooker was also aware that, before any amounts were available to be paid to himself (as ultimate beneficial owner of BidCo) by way of a distribution or dividend, it would be necessary for Mr Fuchs to receive his full entitlements in respect of this agreement, including any interest. In particular, Mr Hooker had received drafts of the Convertible Loan Agreement, and was aware that, as he told Mr Weir on 2 June 2020, Mr Fuchs was willing to invest $10m on the basis that he would receive “10% return on the new $10 m, plus capital back on what he has invested into the company prior - $6 m” (see paragraphs [140]-[141] above). That is, Mr Fuchs would, by reason of his investment, be entitled to receive a total amount of $17m from HoldCo. (It should be noted that the experts agreed that this amount of $17m should be deducted before determining the value of Mr Hooker’s interest in the restructured group.)
Having regard to those matters, I am satisfied that it was Mr Hooker’s view, as at 10 June 2020, that his beneficial ownership of the sole share in the entity that was to be, after the proposed restructure, the ultimate holding company of the LJHRES Group was of only nominal value.
Further, I am satisfied that Mr Hooker proposed a restructure in which he would hold the sole share in the ultimate holding entity of the LJHRES Group because he considered that this structure was in the interests of the entities in the LJHRES Group (rather than to advance his own self-interest). In particular, I note the following matters.
First, Mr Hooker was of the view that the ultimate holding entity of the Core Business needed to be owned by himself, rather than Mr Fuchs, because Mr Fuchs was not an Australian resident and therefore any transfer of ownership to him would be subject to Foreign Investment Review Board approval. In a document which Mr Hooker prepared and sent to Gilbert + Tobin on 26 May 2020, which set out the steps necessary in order to achieve a restructure, including “Incorporate Bidco”, Mr Hooker stated that this entity would be “100% owned by Janusz [Mr Hooker] (Australian resident therefore no FIRB [Foreign Investment Review Board])” and that Mr Fuchs, who was not an Australian resident, “can be a director”.

“Q. So, Mr Hooker, when you voted in favour of placing Empireal in voluntary administration, you were intending to bring about a restructure, correct?

A. Yes.

Q. And the restructure involved you becoming the owner of the group, correct?

A. That was one of the outcomes, yes.

Q. And that was the outcome you were intending to achieve, correct?

A. It was a voluntary administration process, so the outcome was undetermined. That was an outcome.

Q. And that was the outcome that you were intending to achieve yourself, correct?

A. It was one of the outcomes that we wanted to achieve.

Q. What you were intending to achieve, Mr Hooker, was that you would become the owner of the group, that's right, isn't it?

A. There was a sequence of events leading up to that, and a bunch of variables, and that was one of the outcomes.

Q. And that's the outcome you wanted, wasn't it, Mr Hooker?

A. It was the outcome that we put in place, as leading off of VA.

Q. And you were to become the owner of the group without being subject to the Koi debt, correct?

A. That's how it was structured, yes.

Q. And you had the same intention when voting in favour of the voluntary administration of LJHRES Holdings, correct?

A. It was all the same restructure.

Q. And so, you are agreeing with me, correct?

A. Remind me of the question?

Q. That you had the same intention when voting in favour of the voluntary administration of LJHRES Holdings?

A. The intention being?

Q. Being to become the owner of the group without being subject to the Koi debt as part of the restructure?

A. To hold the one share in the group, with Koi being out of the structure, correct.

Q. And the same with LJHRES?

A. It was all part of the same VA process.

Q. And that involved LJHRES Holdings selling its shares in LJHRES for a dollar, correct?

A. I'd have to look at the structure. I can't remember which level the shares were sold at a dollar.

Q. But you ended up owning the operating businesses, correct, LJHRES, you remember that part, don't you?

A. So, the one share that I held ultimately owned the operating businesses.”

The terms in which Empireal’s submission is framed suggests that, in this passage of cross-examination, Mr Hooker conceded that, in voting in favour of the VA Resolutions, he was acting with the intention of becoming the owner of the LJ Hooker Group free of the Koi debt. He did not make any such concession. Instead, the position is more accurately put as follows. Mr Hooker conceded that he voted in favour of placing Empireal, LJHRES Holdings and LJH RES into voluntary administration with the intention of bringing about the restructure that was set out in the Restructuring Support Deed, and conceded that this restructure:
had, as one of the elements, that Mr Hooker would hold the sole share in the ultimate holding company of the LJHRES Group; and
resulted in “Koi being out of the structure”.

Conclusion – reasons for voting in favour of VA Resolutions

For the reasons given above, Empireal has not established:
that the “Reasons” Document does not record the genuine reasons of Mr Hooker and the other directors for placing Empireal, LJHRES Holdings and LJH RES into voluntary administration; or
that Mr Hooker voted in favour of the VA Resolutions for the purpose of obtaining the “Personal Benefits” pleaded in the FASOC; or
that Mr Hooker (or for that matter, Mr Weir or Mr Heathcote) engaged in any dishonest conduct by voting in favour of the VA Resolutions, or in creating the “Reasons” Document.
I am satisfied that Mr Hooker, Mr Weir and Mr Heathcote voted in favour of the VA Resolutions because they genuinely formed the opinion, on the information available to them and on rational grounds, that each of the Appointment Entities was insolvent, or was likely to become insolvent in the future; and that the “Reasons” Document records the matters on the basis of which Mr Hooker and his fellow directors reached those views.
Further, I am satisfied that:
Mr Hooker was of the view that, although he would, following the restructure, hold the sole share in the ultimate holding company of the LJHRES Group, this share would have only nominal value as at the date of that restructure; and
in proposing and pursuing the restructure of the LJHRES Group that was the subject of the Restructuring Support Deed, Mr Hooker was not seeking to obtain any personal benefit for himself, but was instead acting in what he reasonably perceived to be the interests of the LJHRES Group.

Claims regarding VA Resolutions

In closing written submissions, Empireal advanced three main claims against Mr Hooker in relation to the VA Resolutions:
first, Mr Hooker breached his fiduciary duties and, in particular, breached the conflict rule;
secondly, Mr Hooker contravened ss 181(1)(b) and 182 of the Act; and
thirdly, Mr Hooker contravened s 181(1)(a) of the Act.
The first claim was advanced in respect of the VA Resolutions concerning each of Empireal, LJHRES Holdings and LJH RES, while the second and third were advanced only in respect of the VA Resolutions concerning Empireal.

Breach of the conflict rule

In closing written submissions, Empireal submitted that:
Mr Hooker had a personal interest in placing Empireal, LJHRES Holdings and LJH RES into voluntary administration “because it was a step in the restructure to obtain ownership of the LJ Hooker Group free of the Koi debt”;
it was contrary to Empireal’s interests for each of those entities to be placed into voluntary administration “where there was no proper basis for doing so”, given that “Empireal was not insolvent or nearing insolvency before 10 June 2020” and “there is no evidence that LJHRES Holdings or LJH RES were insolvent or nearing insolvency as at that date”. It was submitted that placing the companies into voluntary administration in those circumstances triggered a demand from Koi to Empireal “which rendered Empireal insolvent”, and “paved the way for the restructure of the LJ Hooker Group, which rendered Empireal’s only valuable asset, its shareholding in LJHRES Holdings, worthless”; and
“it was in Empireal’s interests to pursue the proposals put forward by Koi to avoid being placed into voluntary administration”.
Empireal submitted that, by reason of the matters set out above, the Court should find that Mr Hooker breached the conflict rule by voting in favour of the VA Resolutions “because he acted in a position where his personal interests clearly conflicted with the interests of Empireal in relation to which he owed fiduciary duties”.
Having regard to the findings I have made, this claim must fail.
In particular, I have found that Mr Hooker (and his fellow directors) genuinely held the opinion, as at 10 June 2020, on rational grounds, that each of Empireal, LJHRES Holdings and LJH RES was insolvent or was likely to become insolvent in the future. This provided a proper basis, pursuant to s 436A of the Act, for the directors to resolve to place each of those entities into voluntary administration.
Further, it was consistent with the duties of the directors, and in the interests of the shareholders and of the creditors of each of those companies, for the directors to take steps at that time which were “directed towards the avoidance of any increase in the company’s debt burden”: Woodgate at [36]. This was a matter to which Mr Hooker referred in cross-examination:

“Q. … That restructure conferred no benefit on Empireal, did it?

A. Other than stop accruing liabilities.”

I have also found that, as at 10 June 2020, Mr Hooker was justified in proceeding on the basis that both the “delinking” proposal and the “consensual sale” proposal, which had been briefly floated by Mr Agarwal without any details (and had been the subject of adverse advice from Gilbert + Tobin), were not realistic or viable options for the LJ Hooker Group.
It follows that the matters upon which Empireal relied as giving rise to the alleged conflict on the part of Mr Hooker have not been established.
Senior Counsel for Mr Hooker submitted, in closing oral address, that it was doubtful that any director could breach the conflict rule when voting in favour of a resolution that the company be placed into voluntary administration. The thrust of the submission was that the passing of such a resolution by a board of directors does not involve any dealing in respect of the company’s property, business or affairs, but instead results in the control of the company’s property, business or affairs being transferred from the existing officers of the company (the directors) to another person who will, on appointment, become an officer of the company (the administrator).
In particular, Senior Counsel for Mr Hooker submitted that directors who vote in favour of placing a company into voluntary administration generally do so in “the hope that a DOCA is going to be put forward and an invariable consequence of a DOCA is that directors can’t be sued for insolvent trading”; and hence, if it were correct that a director who might obtain some personal benefit as a result of an administration process was in a position of conflict when voting on a resolution to place a company into administration, then directors would regularly be breaching their fiduciary duties by doing so.
As outlined above, the authorities emphasise that any question as to whether a fiduciary has breached the conflict rule must be determined by reference to the scope of his or her fiduciary obligations, which must in turn be determined by reference to the precise circumstances of the particular case. Given that is so, it is undesirable and unhelpful to express any view, in general terms, as to whether or not the conflict rule applies, or is capable of applying, to a decision by a director to vote in favour of a resolution to place a company into voluntary administration. It is sufficient, in the present case, to resolve Empireal’s claim that Mr Hooker breached the conflict rule by voting in favour of the VA Resolutions to find (as I have found, for the reasons given above) that the particular matters on which Empireal relied as giving rise to a conflict or possible conflict have not been established.
It follows that Empireal’s claim that Mr Hooker breached the conflict rule by voting in favour of the VA Resolutions must be dismissed.

Breach of s 181(1)(b) and s 182

Empireal claimed that “Mr Hooker’s substantial purpose in voting in favour of a resolution to place Empireal into voluntary administration was an improper one; namely for the purpose of permitting a restructure of the LJ Hooker Group so as to allow Mr Hooker to obtain ultimate ownership of the Group free of the Koi debt”. On that basis, Mr Hooker was alleged to have contravened ss 181(1)(b) and 182 of the Act, and to have breached the equivalent duties which he owed at general law, by acting for an improper purpose when he placed Empireal into voluntary administration so as to gain an advantage for himself and to cause detriment to Empireal.
By reason of the findings I have made, this claim has not been established. I have found that Mr Hooker voted in favour of the resolution to place Empireal into voluntary administration because he genuinely believed, on rational grounds, that Empireal was insolvent or likely to become insolvent in the future. I have rejected Empireal’s contention that Mr Hooker voted in favour of that resolution for the purpose of obtaining any benefit for himself by reason of the proposed restructure (see paragraphs [499]-[526] above).

Breach of s 181(1)(a)

Empireal claimed that Mr Hooker contravened s 181(1)(a) of the Act, and breached the equivalent duty that he owed at general law, by failing to act in good faith in the best interests of Empireal.
In Empireal’s closing written submissions, this claim was said to be established on the following four bases.
First, Empireal submitted that “in voting to resolve to place Empireal into voluntary administration, Mr Hooker failed to act in good faith and in the best interests of Empireal because he promoted his personal interests (namely his personal interest in permitting the planned restructure of the LJ Hooker Group to proceed) in a situation where there was a conflict or a real or substantial possibility of a conflict between his personal interests and Empireal’s interests (noting that Empireal’s interests were served by the company not being placed into voluntary administration …)”. I reject this submission, for reasons outlined above when dealing with the other claims advanced by Empireal in relation to the VA Resolutions.
Secondly, Empireal submitted that “a director acting reasonably and rationally would not have voted to resolve to place Empireal into voluntary administration in circumstances where Empireal was not insolvent or nearing insolvency”. I also reject this submission, for reasons give above. I am satisfied that Mr Hooker genuinely believed, on rational grounds, that Empireal was insolvent or was likely to become insolvent in the future, and therefore had a proper basis for voting in favour of the VA Resolution regarding Empireal.
Thirdly, Empireal submitted that, in the event that the Court finds Empireal was insolvent or nearing insolvency as at 10 June 2020, then Mr Hooker’s duty to act in the best interests of Empireal required him to consider the interests of Empireal’s creditors, which was not done by Mr Hooker, “as he sought to strip Empireal of value so as to prevent Koi from recovering its Loan”. I also reject this submission. I have found that, as at 10 June 2020, Mr Hooker was not of the view that the shares in LJH RES that were held by LJHRES Holdings (and were to be transferred to BidCo pursuant to the Restructuring Support Deed) had any substantial value. It follows that he was not of the view that Empireal’s shares in LJHRES Holdings had any substantial value, and was not acting “to strip Empireal of value so as to prevent Koi from recovering its Loan”.
Fourthly, Empireal submitted that, “to the extent Mr Hooker contends that he placed Empireal into voluntary administration in order to save the LJ Hooker Group, that does not absolve Mr Hooker of liability where he has failed to consider the best interests of Empireal”. In support of this submission, reference was made to Sydlow Pty Ltd (in liq*) v* Melwren Pty Ltd (in liq) (1994) 13 ACSR 144 at 147. In that case, McClelland CJ in Eq found that the directors of Sydlow, in deciding that the business and assets of that entity should be taken over by another company, had breached their duty to act in good faith for the benefit of Sydlow because “the benefit of Sydlow — the dominant consideration appears to have been to preserve the continuing viability of the total business operation in the hands of [the second company]” (emphasis added). In the present case, I have found that Mr Hooker (and the other directors) did have regard, in good faith, to the interests of Empireal and in particular, genuinely formed the opinion, on rational grounds, that Empireal was insolvent or was likely to become insolvent in the future, and placed Empireal into voluntary administration for that reason. It was in the interests of Empireal, its shareholders and its creditors that, where the directors formed the opinion that Empireal was insolvent or was likely to become insolvent, they take steps to prevent Empireal from accruing further liabilities.

Claims regarding entry into Restructuring Support Deed

By its entry into the Restructuring Support Deed, L.J. Hooker Investments gained a benefit, namely, the bundle of rights and entitlements under that Deed (including, in particular, the contractual obligation imposed on ICG to support the L.J. Hooker Investments DOCA Proposal, whereby L.J. Hooker Investments would acquire all of the shares in LJH RES for $1.00).
Mr Hooker also obtained a benefit, by reason of being the beneficial owner of L.J. Hooker Investments (and, therefore, the person who stood to become the ultimate beneficial owner of the operating entities in the LJHRES Group in the event that the L.J. Hooker Investments DOCA Proposal was approved by creditors and was implemented). In addition, Mr Hooker obtained a benefit by reason that, pursuant to the Restructuring Support Deed, ICG agreed to support a proposed DOCA which included a term that any claims which LJHRES Holdings had against its directors (including Mr Hooker) would be released, discharged and extinguished.
Empireal submitted that Mr Hooker gave “evasive evidence” in denying “the obvious proposition that cl 4 of the Restructuring Support Deed imposed a prohibition or restriction on ICG, namely that ICG could not support any restructure except that proposed by Mr Hooker”.
The relevant passage of cross-examination to which Empireal referred in support of this submission was as follows:

“Q. This is a prohibition or restriction on ICG, correct?

A. Okay, let me think about that. So, the loan document said that if I lose control they can accelerate. ICG was point blank saying they don’t want to back anyone else. So, what ‑ so, if somebody else did take control, then they would accelerate and get out of the loan. So, prohibition on ICG? No, it’s just what the original loan documents intended. So, I don’t agree with that statement, but it says what it does, it blocks out ‑ it means that whoever wins with ICG, then they are ‑ they need to vote with Bid Co. I think that’s what it says.”

I do not accept Empireal’s submission that, in giving this answer, Mr Hooker was being “evasive” or “acted as an advocate for his case”. Mr Hooker requested time to consider the proposition that was put to him about the effect of cl 4, and he appears to have been approaching, as a layperson, the question whether this clause was a “prohibition or restriction” on ICG not by reference to the terms of the clause (acknowledging that “it says what it does”), but by reference to the question whether, in the absence of this clause, ICG would have in fact acted in a different manner, and was in that sense “restricted” from doing so by this clause (with his evidence being that “ICG was point blank saying they don’t want to back anyone else”).
This distinction is apparent from the following exchange which occurred almost immediately following the answer quoted above:

“Q. This, 4(c), is a restriction on ICG’s ability to vote or commit to an alternative restructuring other than yours. Correct?

A. Yeah, but they weren’t interested in anything else, so they’re not taking anything away from them. It was an easy discussion with them.

Q. You agree with me that clause 4(c) is a restriction on ICG’s liberty to vote or commit to a different restructuring. That's plain on its face, isn’t it?

A. Correct. You are right there.”

Mr Hooker readily conceded that cl 4(c) was, in its terms, “a restriction on ICG’s liberty to vote or commit to a different restructuring”, but maintained that it was his understanding that ICG “weren't interested in anything else, so [cl 4(c) was] not taking anything away from them”. I am satisfied that Mr Hooker genuinely held this view. It may be inferred, from the fact that ICG executed the Restructuring Support Deed, that ICG was of the view that the restructuring proposed by L.J. Hooker Investments was in ICG’s own commercial interests, and that ICG wanted this restructuring to proceed. Further, ICG did not, in any of the various communications by which the Restructuring Support Deed was negotiated, express any concern that cl 4(c) would unreasonably fetter ICG’s ability to consider any other restructuring proposals.
Mr Hooker also conceded, in the course of cross-examination, the following matters:
he wanted to “lock in the senior [lender] so that [the L.J. Hooker Investments DOCA Proposal] was viable”; and
he requested that cl 4(c) be amended, so as to require ICG not to support “any alternative restructuring or refinancing” which was “proposed by an entity that is not [L.J. Hooker Investments]”, because he did not “want someone else walking in[to] the position”.
Mr Hooker executed the Restructuring Support Deed as the director of L.J. Hooker Investments. Empireal was not a party to the Restructuring Support Deed.
The Restructuring Support Deed concerned a DOCA proposal in respect of LJHRES Holdings and LJH RES (but not Empireal), and proposed amendments to the ICG Facility arrangements (to which Empireal was not a party).
In executing the Restructuring Support Deed, Mr Hooker did not use his position as a director of Empireal, and did not exercise any powers, or discharge any duties, as a director of Empireal. Accordingly, although Empireal pleaded that Mr Hooker, in causing L.J. Hooker Investments to enter into the Restructuring Support Deed, contravened ss 181(1)(a), 181(1)(b) and 182 of the Act, such a claim was unable to be established (see Sunnya at [25]; Hakea Holdings at [7]-[9]), and Empireal did not, in closing written submissions, press any such claim.
Instead, Empireal’s closing written submissions regarding the Restructuring Support Deed focused on its claim that Mr Hooker had, by causing L.J. Hooker Investments to enter into that deed, breached the conflict rule. This claim was pleaded as follows (FASOC, [111(c)]):

“In causing LJ Hooker Investments to enter into the Restructuring Support Deed …, Mr Hooker:

…

c. breached his duty to Empireal not to promote his personal interests by making or pursuing a gain or benefit in circumstances in which there is a conflict or a real or a substantial possibility of a conflict between his personal interest and the interests of Empireal and/or not to put himself in a position where his interests and duty to Empireal conflict, or where there is a real or a substantial possibility of such a conflict.”

The particulars to this claim put the conflict as follows (emphasis added):

“Mr Hooker’s conduct in causing LJ Hooker Investments to enter into the Restructuring Support Deed involved Mr Hooker acting in a position of conflict, as that action involved pursuing and obtaining a benefit through an action which had a real or substantial possibility of causing Empireal a detriment, thereby giving rise to a real or substantial possibility of conflict.”

As set out at paragraphs [254]-[259] above, a fiduciary is required to account for a benefit if it was obtained either (1) when there was a conflict or possible conflict between his or her fiduciary duty and personal interest (the conflict rule), or (2) by reason of his or her fiduciary position or by reason of taking advantage of an opportunity or knowledge derived from that fiduciary position (the profit rule): Warman International at 557-558; Ancient Order of Foresters at [68]-[69] (Gageler J).
Empireal’s claim in respect of the Restructuring Support Deed did not rely on the profit rule. Empireal did not allege that any benefit under the Restructuring Support Deed was obtained by reason of Mr Hooker’s fiduciary position as a director of Empireal, or was obtained by reason of his taking advantage of any opportunity or knowledge derived from that position.
Instead, Empireal relied on the conflict rule.
In order for this rule to apply, it must be shown that there was a conflict or possible conflict between Mr Hooker’s fiduciary duty as a director of Empireal and his personal interest.
Determining the scope of the fiduciary obligations that Mr Hooker owed to Empireal requires close attention to the nature of the relationship between Mr Hooker and Empireal and to the specific circumstances of this case: Hospital Products at 102. It is necessary to identify, by reference to this relationship and those circumstances, the scope, or subject matter, of the area within which Mr Hooker was not free to act self-interestedly: Anderson v Canaccord at [152].
As a general matter, a person may be a director of companies which have competing interests without breaching the conflict rule: Streeter v Western Areas Exploration Pty Ltd (No 2) [2011] WASCA 17 at [69] per McLure P; and Hylepin at [38]. In Australian Careers Institute at [135], Sackville AJA quoted, and described as “sound as a matter of principle”, the observation of Jessup J in Links Golf Tasmania Pty Ltd v Sattler (2012) 213 FCR 1; [2012] FCA 634 at [564] that “the mere fact of being the director of a company will not preclude the director from engaging in a competing business on his or her own account”, although it “leaves open any issues of actual conflict, or of conflict reasonably perceived to be within the range of sensible possibilities, arising on the facts of a particular case”.
It is well established that, where a person is acting as a director of two companies whose interests do not coincide, that person, as a fiduciary, must not exercise their powers as the director of one company for the benefit or gain without clearly disclosing the second company’s interests to the first company and obtaining the first company’s consent: (1995) 183 CLR 501 at 517 per Brennan, Deane, Toohey and Gaudron JJ; [1995] HCA 1. For example, in at [360], Black J observed as follows (emphasis added):

“To the extent that Clare was the principal and controlling mind of Sorrento China, Sorrento Kitchens and BL/GLCo as pleaded in FASC [146(c)], it also does not seem to me that would in itself establish a breach of the rule against conflict of interest which would not have been established by her being a director of both Colorado and those companies, unless it were also established that Clare had exercised her powers as a director or officer of Colorado for the benefit of those companies without disclosure of the competing interest and informed consent.”

This principle has no application in the present case, since any benefit obtained by Mr Hooker, in causing L.J. Hooker Investments to enter into the Restructuring Support Deed, was not a benefit obtained by exercising any powers as a director of Empireal.
It is not uncommon, where a company is placed into voluntary administration, for a deed of company arrangement to be proposed, whereby all or part of the company’s business will be transferred to another entity which is owned or controlled by a person who is a director of the first company. In such a situation, the interests of the company which is the deed proponent may well diverge significantly from the interests of the company which is in voluntary administration.
In Diakovasili v Order of AHEPA NSW Inc [2023] NSWSC 1282 at [211]-[213], Black J made the following observations regarding the scope of the fiduciary obligations owed by a director in such circumstances, which bear quoting in full:

“As I have noted above, a duty to avoid conflicts of interest only arises in that part of a relationship between a fiduciary and his or her beneficiary that is fiduciary in character. It is commonplace in a voluntary administration that a director of a company will propose a deed of company arrangement, which may propose the acquisition of the company’s business or its assets at a price that may be less than fair value but reasonable in the circumstances, for example because no alternative purchasers have an interest in those assets. The proposed deed of company arrangement will be put by a voluntary administrator to creditors of the company for approval at the second meeting of creditors. It is inconceivable that the rule against conflict of interest and duty applies in that situation to prevent such a proposal, on the basis that the director’s personal interest in acquiring the company’s business or assets on more or less favourable terms will inevitably conflict with any duty owed to the company or association to maximise the purchase price for the business or assets, just as a vendor’s and a purchaser’s interests will inevitably be in conflict. The utility of the voluntary administration regime would be significantly undermined if directors or officers of a company or association, who would ordinarily be well-placed to put a deed of company arrangement, are prevented from doing so. …

It seems to me that, in consequence of these matters, the premise of the Plaintiffs’ claim for Post Appointment Breaches, that the Nine Defendants… owed a fiduciary duty which could be breached by putting forward a proposed DOCA for creditors’ approval, is not seriously arguable, either generally in respect of companies or here in respect of AHEPA NSW. That result follows because, first, as Mr Corsaro submits, a director of a company … is not in a position of real and sensible conflict of interest in putting a proposal for a deed of company arrangement on more or less favourable terms, where the assessment of that proposal and the decision whether the company … executes that deed of company arrangement will not be made by the director …but respectively by the voluntary administrator and creditors at the second meeting of creditors.

The same result follows, second and alternatively, because the scope of a continuing fiduciary duty owed by a director of the company … is narrowed when a voluntary administrator is appointed and takes control of the company … to the exclusion of that officer or committee member, and does not extend to steps which he or she may take to put such a proposal, in a similar way that the fiduciary duty owed by a joint venturer in Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1 did not extend to steps taken in assigning its interest in the joint venture. There is no seriously arguable claim that such a director (or, relevantly, the Four Defendants) can breach a fiduciary duty or the rule against conflict of interest by a putting a proposed DOCA on more or less favourable terms for consideration by the voluntary administrator and then by creditors at the second meeting of creditors. …”

The situation in the present case is a step removed from the situation addressed in Diakovasili, in that the restructure proposed by L.J. Hooker Investments, which was the subject of the Restructuring Support Deed, was not a restructure that was proposed in the voluntary administration of Empireal, but was instead a restructure in the voluntary administration of LJHRES Holdings and LJH RES.
I acknowledge that, in the present case, the Restructuring Support Deed was entered prior to the appointment of the Administrators (which occurred later on the same day). However, the critical question is not whether the Restructuring Support Deed, which was executed after the VA Resolutions were passed, was entered before or after the instrument appointing the Administrators was signed. Instead, the critical question is whether Mr Hooker’s conduct, in causing L.J. Hooker Investments to enter into the Restructuring Support Deed regarding the terms of a DOCA that would be proposed in the voluntary administration of LJHRES Holdings and LJH RES (in circumstances where the directors of each of Empireal, LJHRES Holdings and LJH RES had already resolved that the Administrators should be appointed) was conduct that fell within the scope, or subject matter, of the area within which Mr Hooker was, as a director of Empireal, not free to act self-interestedly. If it did not fall within that scope, then Mr Hooker was free to act in his own interests and was not accountable for profits which he so derived: Blythe v Northwood at [192], [211].
In determining the scope of Mr Hooker’s fiduciary obligations, it is important to have regard to the rationale for the imposition of those obligations. Mr Hooker’s personal interest in causing L.J. Hooker Investments to enter into the Restructuring Support Deed will only engage the conflict rule if it gives rise to a conflict with his duty to Empireal or a real or substantial possibility of such a conflict: ASIC v Jones at [188]. A conflict will be established if there is a real and sensible possibility of Mr Hooker’s personal interests dividing his loyalty, with the result that he could not properly discharge his duties to Empireal: Coope v LCM Litigation Fund Pty Ltd [2016] NSWCA 37 at [105] per Payne JA (with whom Gleeson and Leeming JJA agreed), referring to Maguire v Makaronis (1997) 188 CLR 449 at 465; [1997] HCA 23. Accordingly, when a conflict of interest and duty is asserted, it is important to identify, with some precision, the duties and interests which are said to conflict or to present a real, sensible possibility of conflicting: ASIC v Jones at [191].
Empireal did not, in closing submissions, clearly articulate the basis on which it was submitted that Mr Hooker’s conduct, in executing the Restructuring Support Deed on behalf of L.J. Hooker Investments, fell within the scope, or subject matter, of the area within which Mr Hooker, as a director of Empireal, was not free to act self-interestedly. In particular, Empireal did not identify, with precision, the basis on which it was asserted that there was a real and sensible possibility of Mr Hooker’s personal interest in respect of L.J. Hooker Investments’ entry into the Restructuring Support Deed dividing his loyalty, such that he could not properly discharge his duties to Empireal.

Claims regarding redemption of RP Shares

On 8 August 2020, Mr Hooker:
executed, on behalf of LJHRES Holdings, the RP Shares Consent Deed, by which LJHRES Holdings gave its consent to the redemption of the RP Shares issued by LJH RES for $1.00 (see paragraph [238(2)] above); and
voted, as one of the directors of LJHRES Holdings, in favour of the RP Shares Resolution to ratify the amendment of the terms of the RP Shares so as to permit their redemption for $1.00 (see paragraph [238(4)] above).
It was a condition precedent to the implementation of the restructure in the LJHRES Holdings and LJH RES DOCAs that the RP Shares Consent Deed and the RP Shares Resolution be provided to the Deed Administrators (see paragraph [236] above).
Also on 8 August 2020, shortly after the above steps were taken, LJHRES Holdings and LJH RES entered into DOCAs in the form of the Final MF LJH DOCA Proposal, following a resolution of the creditors of each entity approving entry into those agreements, at the second creditors’ meetings on 4 August 2020 (see paragraphs [229]–[231] above).
Mr Hooker gave the following evidence when taken to the RP Shares Consent Deed in cross-examination:

“Q. … Now, this consent was also part of the restructure that I asked you questions about earlier today, isn't it?

A. The one in the [DOCA] process?

Q. Yes.

A. That was one of the elements of it, yes.

…

Q. And so, when you signed this document, you were intending to bring about that restructure, correct?

A. No, the directors at that point were just ratifying things proposed by the administrator to get certain [DOCAs] to work.

Q. Well, Mr Hooker, you had to take ‑ sorry, I withdraw that ‑ you have executed the document, that's right, isn't it?

A. Under the instruction of the administrator, yes.

Q. And your understanding that this was ‑ you'll agree with this, won't you, Mr Hooker, you understanding was that this was a step necessary to bring about that [DOCA], do you agree with that?

A. Yes, otherwise the [Administrators] wouldn't have said you need to sign this as part of the [DOCA].

…

Q. Mr Hooker, your purpose in signing this document was to bring about the restructure, wasn't it?

A. Well, the purpose was, is to follow the rule book and do what the administrator told me, the same administrator that the company appointed. So, this was a piece of executing the [DOCA], which was going to be proposed at the creditors meeting, so if this didn't happen, then I would have gone against the administrator, as would the other directors, so.”

Similarly, when taken to the RP Shares Resolution in cross-examination, Mr Hooker gave evidence that this resolution was “one of the steps that was required to have the Bidco DOCA completed” and that the directors “were instructed to sign it” by the Administrators.
I accept Empireal’s submission that Mr Hooker had a personal interest in the execution of the RP Shares Consent Deed and the passing of the RP Shares Resolution because those steps were necessary for:
the restructure to proceed, by which MF LJH Nominees (being an entity of which Mr Hooker was the sole beneficial owner) became the ultimate holding company of LJH RES and the operating entities in the LJHRES Group; and
the implementation of the LJHRES Holdings DOCA, pursuant to which any claims which LJHRES Holdings had against its directors (including Mr Hooker) were released, discharged and extinguished.
In executing the RP Shares Consent Deed on behalf of LJHRES Holdings, and in voting in favour of the RP Shares Resolution, Mr Hooker did not use his position as a director of Empireal, and did not exercise any powers, or perform any function, as a director of Empireal. Instead, he took those steps as a director of LJHRES Holdings, and exercised his powers as such in doing so. Accordingly, although Empireal pleaded that Mr Hooker, in taking these steps, contravened duties that he owed to Empireal under ss 181(1)(a), 181(1)(b) or 182 of the Act, such a claim is unable to be established (see Sunnya at [25]; Hakea Holdings at [7]-[9]), and Empireal did not, in closing written submissions, press any such claim.
Instead, in its closing written submissions, Empireal framed its claim against Mr Hooker regarding the RP Shares Consent Deed and the RP Shares Resolution solely in terms of the conflict rule.
This claim was pleaded as follows (FASOC, [113(c)]):

“In causing LJHRES Holdings to consent to the redemption of the RP Shares for $1, Mr Hooker:

…

c. breached his duty to Empireal not to promote his personal interests by making or pursuing a gain or benefit in circumstances in which there is a conflict or a real or a substantial possibility of a conflict between his personal interest and the interests of Empireal and/or not to put himself in a position where his interests and duty to Empireal conflict, or where there is a real or a substantial possibility of such a conflict.”

The particulars to this claim repeated, verbatim, the particulars of the claim that Mr Hooker had breached the conflict rule in causing L.J. Hooker Investments to enter into the Restructuring Support Deed (see paragraph [561] above). This was plainly an error, as there was no reference in those particulars to LJHRES Holdings, the RP Shares Consent Deed, or the RP Shares Resolution, and therefore no articulation of the basis on which it was alleged that Mr Hooker was in a position of conflict (as regards Empireal) either when executing, on behalf of LJHRES Holdings, the RP Shares Consent Deed or when voting in favour of the RP Shares Resolution.
The conflict was put as follows in Empireal’s closing written submissions:

“Mr Hooker had an interest in the restructure taking effect because he stood to own the whole of the LJ Hooker Group for nominal consideration and free of the Koi debt. The redemption of the RP Shares for $1 was against the interests of Empireal including because it gave effect to a restructure which rendered Empireal’s asset worthless. By causing LJHRES Holdings to consent to the redemption of the RP Shares for $1, Mr Hooker placed himself in a position of conflict, in breach of the no conflict rule.”

This submission did not identify, with precision, the basis on which it was asserted that there was a real and sensible possibility of Mr Hooker’s personal interest in respect of the redemption of the RP Shares dividing his loyalty, such that he could not properly discharge his duties to Empireal.
Mr Hooker signed the RP Shares Consent Deed and voted in favour of the RP Shares Resolution in circumstances where:
each of Empireal and LJHRES Holdings had been placed into voluntary administration;
the Administrators of Empireal and LJHRES Holdings had control of each company’s business, property and affairs, and were able to exercise any power, and perform any function, that the directors of those companies could have exercised or performed if they were not under administration (s 437A(1));
Mr Hooker was unable, pursuant to s 198G of the Act, to exercise any power, or perform any function, as a director of either Empireal or LJHRES Holdings, subject to a limited number of exceptions including, relevantly, where he was acting with the written approval of the Administrators;
the creditors of LJHRES Holdings had, at the second creditors’ meeting on 4 August 2020, resolved (pursuant to s 437C of the Act) that LJHRES Holdings should execute a DOCA in the form of the Final MF LJH DOCA Proposal; and
it was a term of the LJHRES Holdings DOCA (see paragraph [234] above) that:

(a) during the period between the Deed coming into effect and being terminated, the directors of LJHRES Holdings must not perform any function, or exercise any power, as a director of LJHRES Holdings, or purport to do so, except where prior consent and approval has been given by the Deed Administrators; and (b) the Deed Administrators authorised the directors of LJHRES Holdings to cause LJHRES Holdings to enter into the “Transaction Documents” (which were defined as including the RP Shares Consent Deed and the RP Shares Resolution).

It follows that, at the time Mr Hooker executed, on behalf of LJHRES Holdings, the RP Shares Consent Deed and voted in favour of the RP Shares Resolution:
he had the express approval of the Administrators to take those steps in his capacity as a director of LJHRES Holdings; and
he was prohibited from performing any function, or exercising any power, in his capacity as a director of Empireal.
Empireal focussed, in submissions and in cross-examination of Mr Hooker regarding the redemption of the RP Shares, on the following statement in the RP Shares Resolution, under the heading “Acknowledgements” (emphasis added):

“It was NOTED that the directors were of an opinion that:

(a) passing the resolutions to be considered at the meeting in respect of the Proposed Transactions would benefit the Company and its shareholder;

(b) the Company’s participation in effecting the Proposed Transactions was in the best interests of the Company and its shareholder; and

(c) in deciding to ratify the Proposed Transactions, they were acting for a proper purpose reasonably connected with the actual or potential business of the Company, and in accordance with the Company’s constitution.”

The sole shareholder of LJHRES Holdings was Empireal. Accordingly, Empireal submitted that this acknowledgement provided evidence that Mr Hooker was aware that he was obliged to take into account the interests of Empireal when considering whether to vote in favour of the RP Shares Resolution and whether to take steps to effect the redemption of the RP Shares for $1.00.
The submission was put as follows in opening address:

“this is an acknowledgement of the need to here consider Empireal’s interests, but this was manifestly not in the interests of Empireal, let alone its best interests, and conferred no benefit whatsoever on Empireal. To the contrary, what it did was facilitate the transfer away from LJHRES Holdings and LJHRES, being the valuable asset it held, thereby rendering the LJHRES Holdings shares worthless.”

The reference in the ”Acknowledgements” to consideration being given to the interests of the shareholder of LJHRES Holdings (namely, Empireal) is a reference to such consideration being given by the directors of LJHRES Holdings (namely, Mr Hooker and Mr Weir) in their capacity as such, at the time of voting in favour of the RP Shares Resolution.
There is an interesting question as to the scope of the duties owed by the directors of LJHRES Holdings when voting in favour of the RP Shares Resolution, in circumstances where:
the directors had been authorised to do so by the Administrators;
their powers and functions as directors were otherwise suspended; and
this resolution was a condition precedent to the implementation of a DOCA that had been approved by the creditors of LJHRES Holdings, pursuant to which substantial additional funds were to be invested by Mr Fuchs in the LJHRES Group, from which payments were to be made to the secured creditor, ICG.
In particular, there is an issue as to whether the directors would be acting, consistently with (or in breach of) any duties which they owed to LJHRES Holdings, in refusing to take this step which was necessary in order to implement a DOCA which the creditors of the company had approved, and which therefore may be taken to be in the interests of creditors, on the basis that they did not consider the implementation of the DOCA to be in the interests of the shareholders of the company.
It is unnecessary to resolve these matters. This case does not involve any claim by LJHRES Holdings that either of Mr Hooker or Mr Weir breached his duties as a director of that entity by voting in favour of the RP Shares Resolution. Empireal did not seek leave to bring any such derivative action in the name of LJHRES Holdings. Further, it was a term of the LJHRES Holdings DOCA that, as at the date of that deed, any claims which LJHRES Holdings had against its directors were “released, discharged and extinguished” (cl 4.8(c)). (Empireal pleaded that, as a result of Mr Hooker’s breaches of duty to Empireal, it lost the valuable opportunity to bring a derivative claim on behalf of LJHRES Holdings against Mr Hooker for breaches of his duties (FASOC, [116], in particular (iv)), but no submissions were advanced, in Empireal’s closing submissions on causation and quantum, regarding the existence or value of any such claims. Empireal confirmed, in closing oral address, that it did not put any value on the release of such claims.)
Instead, this case involves a claim that, by executing, on behalf of LJHRES Holdings, the RP Shares Consent Deed and by joining in the RP Shares Resolution, Mr Hooker obtained a benefit in circumstances where there was a conflict or possible conflict between his personal interests and his fiduciary obligations as a director of Empireal.

Causation and Remedies

Introduction – “Assumed Set of Findings”

I have determined that none of Empireal’s claims against Mr Hooker has been established.
It follows that issues of causation, relief and quantum do not arise for determination. However, in the event that I have erred in determining issues of liability, I have addressed these issues below.
I have done so in a somewhat abbreviated fashion, given that the issues as to whether causation has been established and what relief is available necessarily depend upon the precise conduct found to have constituted a breach of Mr Hooker’s duties to Empireal. I do not consider it a useful exercise to address the issues of causation and relief by reference to a range of different possible combinations of findings, in circumstances where Empireal advanced claims in respect of a number of resolutions or transactions, where each was said to have involved the breach of a number of duties, and where the case was advanced both on the basis that the conduct was dishonest and on the basis that it was not necessary to establish dishonesty.
I have instead approached the issues of causation and relief by reference to a single alternative scenario, in which (contrary to the findings I have made) Empireal established each of its claims against Mr Hooker, including that:
Mr Hooker failed to act in good faith, by voting in favour of the VA Resolutions in circumstances where he (and the other directors) did not genuinely hold the opinion, and did not have rational grounds to form the opinion, that any of Empireal, LJHRES Holdings or LJH RES was insolvent or was likely to become insolvent in the future;
Mr Hooker voted in favour of the VA Resolutions for an improper purpose, namely, to gain a valuable benefit for himself (in the form of beneficial ownership of the LJ Hooker Group unburdened by the Koi debt);
for the same purpose, Mr Hooker caused L.J. Hooker Investments to enter into the Restructuring Support Deed and caused LJHRES Holdings to consent to the redemption of the RP Shares for $1.00, in circumstances where there was a conflict between his personal interest in respect of those matters and his fiduciary obligations to Empireal;
the conduct set out in paragraphs (1)-(3) above amounted to a dishonest breach of Mr Hooker’s fiduciary obligations to Empireal; and
the conduct set out in paragraphs (1)-(2) above also amounted to a breach of Mr Hooker’s duties to Empireal under ss 181 and 182 of the Act.
I refer to the findings set out in subparagraphs (1)-(5) above as the Assumed Set of Findings.
By its Originating Process, Empireal seeks:
in respect of Mr Hooker’s breaches of his fiduciary duties:

(a) an account of profits; or, alternatively (b) equitable compensation; or, alternatively (c) a constructive trust in favour of Empireal over Mr Hooker’s interest in MF LJH Nominees; and

in respect of Mr Hooker’s contraventions of ss 181 and 182 of the Act, relief under s 1317H (this claim including both profits made by Mr Hooker and loss suffered by Empireal).
I outline below the relevant principles in respect of each of those remedies, and address the findings that I would have made regarding issues of causation and the available relief, in the event that I had made the Assumed Set of Findings.

Account of Profits

Relevant Principles

Where a fiduciary has obtained a benefit in breach of the conflict rule or the profit rule, the fiduciary is liable to account for that benefit, regardless of whether the person to whom the duty is owed has suffered injury or loss (Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 at 394 per Gibbs J; [1975] HCA 8), and regardless of whether the person to whom the duty is owed was unwilling, unlikely or unable to make the profit for which an account is taken (Warman International at 558; He v Sunnya Pty Ltd [2025] NSWCA 78 at [86] per Bell CJ (Leeming JA and Basten AJA agreeing)).
Although the “assessment of the profit will often be extremely difficult in practice”, it is nonetheless necessary “to determine as accurately as possible the true measure of the profit or benefit obtained by the fiduciary in breach of his duty”: Warman International at 558. The aim of the account of profits is to “strip from the party in breach the gains made by reason of the breach”: Xiao v BCEG International (Australia) Pty Ltd (2023) 111 NSWLR 132; [2023] NSWCA 48 at [41] per Gleeson JA (Mitchelmore JA and Griffiths AJA agreeing).
Whether a benefit can be said to have been obtained by reason of a breach of fiduciary duty “is a question of causation or contribution that depends on ‘a precise examination of the particular facts’ of the case”: Ancient Order of Foresters at [9], Kiefel CJ, Keane and Edelman JJ. In that case, their Honours observed (at [13]) that:

“While it is true that equity will not require an errant fiduciary or a participant in a breach of fiduciary duty to account for an advantage which the breach of fiduciary duty has not caused or to which it has not sufficiently contributed [Warman International v Dwyer at 561], where causation is sufficiently established the onus is upon the errant fiduciary or participant to show that he or she should not account for the full value of the advantage.”

Their Honours added (at [14]-[15]) that there are two ways in which a wrongdoer might discharge this onus and thereby reduce the extent of the liability to disgorge profits. The first is by proving his or her entitlement to an allowance for costs incurred, and labour and skill employed (although their Honours noted that this “can involve notorious difficulties in attribution of costs”). The second is by demonstrating that “the benefit or advantage is beyond the scope of the liability for which the wrongdoer should account for profits”. This might be established “if the profit or benefit has no reasonable connection with the wrongdoing”. Their Honours continued (at [16]):

“No precise test has been prescribed for determining when it will be inequitable to account for a benefit on the basis that it has no reasonable connection with wrongdoing. Nor is there any need for such a test. All of the circumstances must be considered, including the nature of the conduct.”

In the same case, Gageler J observed (at [83]) that the “cardinal principle of equity” is that the remedy must be fashioned to fit the nature of the case and the particular facts. Identification of the benefit for which a fiduciary is to be ordered to account is the outcome neither of judicial discretion nor of the determination of “a mere factual issue of causation”, but is instead “a matter of judgment informed by equitable principle”. However, that does not mean that equity is ignorant of questions of causation. Rather, “questions of causal nexus in a remedial context must be addressed by reference to the equitable obligation breach of which is to be vindicated by the remedy that is sought” (at [84]). Accordingly, his Honour said (at [85], footnotes omitted) that:

“The benefit or gain for which a fiduciary or knowing participant is liable to be ordered to account must, as a baseline requirement, have a causal connection to the fiduciary’s breach of equitable obligation. The requisite causal connection was explained in Warman to exist if the benefit or gain has been obtained ‘by reason of’ the fiduciary position, where the relevant breach is of the conflict rule, or if the benefit or gain has been obtained ‘by reason of’ the fiduciary taking advantage of an opportunity or knowledge derived from the fiduciary position, where the relevant breach is of the profit rule.”

Because the concern of equity is to vindicate the equitable obligation that has been breached, it is sufficient in order to establish causation that the benefit or gain to the fiduciary would not have been obtained “but for” the breach, even though other contributing causes might be in play: Ancient Order of Foresters at [9], [88].
Further, whatever the position for wrongdoing that is not marked by dishonesty, a defendant cannot avoid liability to disgorge profits dishonestly made by showing that those profits might have been made honestly: Ancient Order of Foresters at [9].

Consideration – Based on Assumed Set of Findings

On the Assumed Set of Findings, Mr Hooker and his fellow directors did not genuinely form the opinion, and did not have rational grounds to form the opinion, that any of Empireal, LJHRES Holdings and LJH RES was insolvent or likely to become insolvent in the future, and therefore did not have a basis for putting any of those entities into voluntary administration; and Mr Hooker’s purpose, in voting in favour of those Resolutions, was to bring about a restructure of the LJ Hooker Group whereby he would obtain the valuable benefit of becoming the ultimate beneficial owner of the operating entities in the LJHRES Group, unburdened by the Koi debt.
It follows, on the Assumed Set of Findings, that but for Mr Hooker’s dishonest breach of his fiduciary duties, the VA Resolutions would likely not have been passed, and therefore none of those entities would have been placed into voluntary administration.
Empireal pleaded, and Mr Hooker admitted, that as “a consequence of Empireal, LJHRES Holdings and LJH RES being placed into voluntary administration”, a restructure of the LJ Hooker Group was effected, Mr Hooker became the sole beneficial owner of the LJ Hooker Group, and Mr Hooker’s beneficial ownership of the LJ Hooker Group was not burdened by debts owed to Koi (FASOC [102]; Defence [102]).
If Empireal, LJHRES Holdings and LJH RES had not been placed into voluntary administration, the restructure of the LJ Hooker Group, which resulted in Mr Hooker becoming the sole beneficial owner of the ultimate holding company of the LJHRES Group, would not have occurred.
In order to bring about this restructure, it was first necessary for the RP Shares to be redeemed. However, on the Assumed Set of Findings, this redemption was also effected as a result of Mr Hooker taking steps which were also in breach of his fiduciary duties.
For those reasons, if I had made the Assumed Set of Findings, I would have determined that Mr Hooker became sole beneficial owner of the ultimate holding company of the LJHRES Group, as a result of, or by reason of, his dishonest breach of his fiduciary duties. In those circumstances, Empireal would have established a sufficient causal connection so as to be entitled (in the event that Empireal elected this remedy) to an order that Mr Hooker account for the value of his beneficial interest in the ultimate holding company of the LJHRES Group (namely, MF LJH Nominees). I deal below with the expert evidence regarding the value of this interest.

Equitable Compensation

Relevant Principles

The object of equitable compensation is to restore persons who have suffered loss to the position in which they would have been if there had been no breach of the equitable obligation: O***’***Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262 at 272 per Spigelman CJ (Priestley and Meagher JJA agreeing), referring to Nocton v Lord Ashburton [1914] AC 932 at 952 per Viscount Haldane LC.
In order to obtain equitable compensation for breach of a fiduciary duty, it is necessary for the plaintiff to establish “a sufficient connection (or ‘causation’) between breach of duty and … the loss sustained”: Maguire v Makaronis at 468.
When assessing causation for the purposes of equitable compensation, the true inquiry is whether the loss would have happened had there been no breach, not whether the loss was caused by or flowed from the breach: O*’*Halloran at 276 per Spigelman CJ (with whom Priestley and Meagher JJA agreed).
In Ancient Order of Foresters at [88], Gageler J observed as follows (footnotes omitted):

“A causal connection between a fiduciary’s breach of fiduciary obligation and a benefit or gain sufficient for the fiduciary or knowing participant to be liable to the equitable remedy of account will exist if the benefit or gain to the fiduciary or knowing participant would not have been obtained ‘but for’ the breach, in the same way as a causal connection sufficient for the fiduciary to be liable to the equitable remedy of compensation will exist if a loss to the person to whom the fiduciary obligation is owed would not have been sustained but for the breach. Because the concern of equity is to vindicate the equitable obligation that has been breached, the ‘but for’ connection will be sufficient even though other contributing causes might be in play. That the fiduciary’s breach of fiduciary obligation is dishonest and fraudulent is also good reason for treating a sufficient causal connection as existing if the dishonest and fraudulent breach can be concluded to have played a material part in contributing to the benefit or gain of the fiduciary or knowing participant even in circumstances where it cannot be concluded that the benefit or gain would not have been obtained but for the breach.”

The amount of compensation is to be assessed at the time of trial, with the full benefit of hindsight: Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484; [2003] HCA 15 at [35].

Consideration – Based on Assumed Set of Findings

Empireal identified, in its closing written submissions, four different heads of loss which it had suffered as a result of Mr Hooker’s breaches of duty, as follows:

“(a) loss associated with the restructure of the LJ Hooker Group (which restructure would not have proceeded but for Mr Hooker’s breaches of fiduciary duty);

(b) loss associated with Empireal not receiving the benefits of the Koi DOCA (which loss would not have been suffered but for Mr Hooker’s breach of fiduciary duty in causing LJ Hooker Investments to enter into the Restructuring Support Deed and/or causing LJHRES Holdings to consent to the redemption of the RP Shares and to ratify the amendment of the terms of the RP Shares to permit such redemption);

(c) loss associated with Empireal not receiving consideration for its shares in LJHRES Holdings shares sold [sic] in a voluntary administration context, including following the termination of the MF LJH DOCA following the non-redemption of the RP Shares;

(d) loss associated with the placement of Empireal into voluntary administration, which rendered Empireal insolvent.”

For the reasons set out above when addressing the account of profits, if I had made the Assumed Set of Findings, I would have determined that, but for Mr Hooker’s dishonest breach of his fiduciary duties, none of Empireal, LJHRES Holdings and LJH RES would have been placed into voluntary administration, and the consequent restructure of the LJ Hooker Group, whereby MF LJH Nominees became ultimate holding company of the operating entities, would not have occurred. It follows that the appropriate focus for determining compensation is paragraph (a) above, that is, the losses which Empireal suffered as a result of the restructure of the LJ Hooker Group which was effected consequent upon those entities being placed into voluntary administration.
In contrast, each of paragraphs (b) and (c) appears to assume that Empireal was placed into voluntary administration. (These paragraphs may have arisen in the event that, for example, no breach was established in respect of the VA Resolutions, but a breach was established in respect of the Restructuring Support Deed and/or the redemption of the RP Shares.)
As for paragraph (d), Empireal advanced this head of loss only in the event that the Court found that Mr Hooker breached his fiduciary duties in placing Empireal into voluntary administration, but was not satisfied that a causal link between that breach of duty and the restructure of the LJ Hooker Group was made out. As I have explained above, I would have been satisfied, in the event that I had made the Assumed Set of Findings, that this causal link was made out, and therefore this head of loss would not have arisen for determination.
Turning back to the losses falling within paragraph (a), if I had made the Assumed Set of Findings, I would have accepted Empireal’s submission that the measure of the loss which it suffered as a result of Empireal, LJHRES Holdings and LJH RES being placed into voluntary administration and the consequent restructure of the LJ Hooker Group would be the difference between the value of Empireal’s assets (namely, its shareholding in LJHRES Holdings) prior to the restructure of the LJ Hooker Group and their value following that restructure. I deal below with the issue of the quantification of this loss.

Constructive Trust

Relevant principles

In Hospital Products at 108, Mason J observed that:

“Once it is established that the fiduciary is liable to account for a profit or benefit which he has obtained there can be no objection to his being held to account as a constructive trustee of that profit or benefit. It can make no difference that it was not his duty to obtain the profit or benefit for the person to whom the duty was owed. What is important is that the advantage has accrued to him in breach of his fiduciary duty or by his misuse of his fiduciary position. The consequence is that he must account for it and in equity the appropriate remedy is by means of a constructive trust.”

Similarly, in Chan v Zacharia at 199, Deane J stated that any benefit or gain obtained by the fiduciary in breach of the conflict rule “is held by the fiduciary as constructive trustee”, and that this constructive trust “arises from the fact that a personal benefit or gain has been so obtained or received and it is immaterial that there was no absence of good faith or damage to the person to whom the fiduciary obligation was owed”.
It is, however, “necessary to keep steadily in mind the cardinal principle of equity that the remedy must be fashioned to fit the nature of the case and the particular facts”: Warman International at 559.
Before a constructive trust is imposed, the Court should first decide whether, having regard to the issues in the litigation, there is an appropriate equitable remedy which falls short of the imposition of a trust: Giumelli v Giumelli (1999) 196 CLR 101; [1999] HCA 10 at [10] per Gleeson CJ, McHugh, Gummow and Callinan JJ.
A constructive trust ought not to be imposed if there are other orders capable of doing full justice; and care must be taken to avoid granting equitable relief which goes beyond the necessities of the case: John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19 at [128]-[129] per curiam (French CJ, Gummow, Hayne, Heydon and Kiefel JJ). Further, third party interests must be borne in mind in deciding whether a constructive trust should be granted: ibid.

Consideration – Based on Assumed Set of Findings

Empireal conceded that, if the Court found that Mr Hooker was liable to account for the value of his shareholding in MF LJH Nominees, then “it would not be appropriate to order a constructive trust” over those shares; and that such a remedy would only be appropriate in a scenario “where such an account is not possible” (because, for example. “the Court concludes that Mr Hooker’s shareholding in ML LJH Nominees is worthless”).
In light of those submissions, I briefly address the question of this relief below, when considering the quantification of the account of profits.

Relief under s 1317H of the Act

Relevant Principles

Section 1317H of the Act relevantly provides as follows:

(1) A Court may order a person to compensate a corporation, registered scheme or notified foreign passport fund for damage suffered by the corporation, scheme or fund if:

(a) the person has contravened a corporation/scheme civil penalty provision in relation to the corporation, scheme or fund; and

(b) the damage resulted from the contravention.

The order must specify the amount of the compensation.

…

(2) In determining the damage suffered by the corporation, scheme or fund for the purposes of making a compensation order, include profits made by any person resulting from the contravention or the offence.

In V-Flow Pty Ltd v Holyoake Industries (Vic) Pty Ltd [2013] FCAFC 16 at [54], the Full Court of the Federal Court (Emmett, Edmonds and Rares JJ) observed that:

“The language of s 1317H is singularly inelegant. Section 1317H(1) provides that the court may order a person to compensate a corporation for damage suffered by the corporation, if the damage resulted from a contravention of relevant provisions of the Corporations Act by that person. Section 1317H(2) then appears to direct the court determining the damage suffered by the corporation to include, as damage, profits made by any person resulting from the contravention. That appears to refer to profits made, irrespective of whether there was countervailing damage suffered by the corporation. That is to say, the effect of s 1317H(2) is definitional, in the sense that it brings into the compensatory scheme of s 1317H the capacity for the court to order that the compensation include profits, even though there was no corresponding loss on the part of the corporation (Grimaldi v Chameleon Mining (No 2) 200 FCR 296 at [630]–[631]). That scheme involves a conflation of the concepts of equitable compensation or damages, on the one hand, and account of profits, on the other.”

Although the section allows for an order to be made for compensation that includes both an amount for “damage suffered” by the plaintiff and an amount for “profits made” by the defendant, the Court will be astute to ensure that the overall award is not unjustifiably inflated by any element of double-counting: see V-Flow at [82].
The words “resulted from” and “resulting from” (in s 1317H(1)(b) and s 1317H(2) respectively) specify the causal link which must be established in order for the claimant to recover compensation for losses which it has suffered or to recover any profits made by the defendant. In Adler v Australian Securities and Investments Commission [2003] NSWCA 131 at [709], Giles JA (with whom Mason P and Beazley JA agreed) said that:

“In my opinion, the words ‘resulted from’ in s 1317H are words by which, in their natural meaning, only the damage which as a matter of fact was caused by the contravention can be the subject of an order for compensation. Like the word ‘by’ in s 82 of the Trade Practices Act 1974 (Cth) (see Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 at [38]-[42]), they should be given their ordinary meaning of requiring a causal connection between the damage and the contravening conduct, free from the strictures of analogy with equitable claims against fiduciaries.”

In Re IW4U Pty Ltd (in liq) [2021] NSWSC 40 at [47], Gleeson J observed that:

“The words ‘resulted from’ require a causal connection between the damage and the impugned conduct and do not import the more stringent test in equity for breach of fiduciary duty: Adler v ASIC [2003] NSWCA 131; (2003) 46 ACSR 504 at [707]-[710]. It has been said that the common sense test of causation from March v E and MH Stramare Pty Ltd (1991) 171 CLR 506, [1991] HCA 12 whether loss would have occurred had there been no breach of duty, is applicable to s 1317H: Hydrocool Pty Ltd v Hepburn [2011] FCA 495; (2011) 279 ALR 646; 83 ACSR 652 at [476]. Such an assessment may involve the positing of counterfactuals: see the remarks of Beach J in Australian Securities and Investments Commission v Mitchell (No 2) [2020] FCA 1098 at [1778]-[1780], in the similar context of s 1317G.”

Compensation under s 1317H is to be assessed “having regard to the position at the time the order is made”, rather than the time of the contravention: Cassegrain v Gerard Cassegrain & Co Pty Ltd (2012) 264 FLR 392; [2012] NSWSC 834 at [11] (Bergin CJ in Eq), referring to Ho v Akai Pty Ltd (in liq) (ACN 001 500 714) [2006] FCAFC 159 at [48]-[52]; [55]-[57].

Consideration – Based on Assumed Set of Findings

For the reasons given above when considering Empireal’s claims for an account of profits and equitable compensation, if I had made the Assumed Set of Findings, I would have determined that, but for Mr Hooker’s contraventions of ss 181 and 182 of the Act, none of Empireal, LJHRES Holdings or LJH RES would have been placed into voluntary administration and the consequent restructure (whereby MF LJH Nominees became ultimate holding company of the operating entities in the LJHRES Group) would not have occurred.
On those findings, I would have determined that any losses suffered by Empireal by reason of the voluntary administration and restructure were losses which “resulted from” Mr Hooker’s contraventions of ss 181 and 182 of the Act; and likewise any profits made by Mr Hooker from the LJ Hooker Group being restructured in this way (by reason of his being sole beneficial owner of MF LJH Nominees) were profits “resulting from” those contraventions.
The compensation sought by Empireal pursuant to s 1317H(1)-(2) was the same as the relief sought by way of an account of profits and equitable compensation. It follows that Empireal’s claim for relief pursuant to s 1317H of the Act did not raise for determination any separate issues of quantification.

Quantum

The expert evidence

Each of the parties led expert valuation evidence. Empireal led evidence from Ms Rebecca Conoulty, who is a Managing Director of Sapere Research Group Ltd and co-lead of its forensic accounting and valuation team. Mr Hooker led evidence from Mr David Mullins, who is a partner of Ernst & Young, specialising in valuation disputes, damages claims and solvency reports.
Ms Conoulty and Mr Mullins met in conclave and prepared a Joint Report dated 8 December 2025, in which, as outlined below, they reached agreement on a considerable number of issues. They gave concurrent oral evidence, which focussed, primarily, on the specific issues of disagreement in the Joint Report.
There was no challenge to the expertise of either Ms Conoulty or Mr Mullins.
Mr Hooker contended, in closing written submissions, that Ms Conoulty had “become an advocate for her client’s cause rather than a detached and impartial expert whose role was to assist the Court”. This was said to be demonstrated by her “intractable position on the use of international companies as suitable comparables” which “exposed an unwillingness to keep an open mind”. In closing address, Senior Counsel for Mr Hooker submitted that when Ms Conoulty was asked a “simple question”, “there would be minutes and minutes of her going on the whole host of different reasons for her particular view”.
I reject this attack on Ms Conoulty’s credit. I am satisfied that Ms Conoulty was, at all times, endeavouring to assist the Court and to explain the views that she had reached and the basis for those views. Although there were a number of instances where Ms Conoulty gave lengthy answers, some of those were in response to open-ended propositions which invited her comment (for example, that “Mr Mullins’ approach is preferable to yours”, or “do you accept that that was an eminently reasonable approach by Mr Mullins”), and Ms Conoulty responded directly to those questions by explaining the reasons why she did not accept that Mr Mullins’ approach was “preferable” or “reasonable”. In other instances, Ms Conoulty was responding to an attack on her integrity (for example, responding to propositions that, if she had been “acting in a non-partisan way”, she would have accepted that her analysis was flawed; or that she had demonstrated “a partisan approach” by “pushing up the value of the LJ Hooker businesses as much as you can”). Ms Conoulty, understandably, felt the need to respond to these questions not only by rejecting the assertion, but by explaining that she had reached her views on the basis of her analysis of the financial information, and how this analysis supported her views.
A challenge to Ms Conoulty’s credit, based on the length of her answers, was put to her, and rejected by her, in the following passage:

“[SENIOR COUNSEL FOR MR HOOKER]: Can I suggest the length of that argument demonstrates my point that you're intractable in your views and that you have become an advocate for your beliefs rather than assisting the Court with an independent opinion on matters?

WITNESS CONOULTY: I am very independent on this. I'm not an advocate. No views have been provided to me that would persuade my opinion. There is nothing in that joint report that Mr Mullins has raised that would cause me to change my opinion that those companies are not reasonably comparable to value this business. Mr Lonergan, in the Lonergan and Edwards report, also used international companies. He arrived at an EBITDA multiple of between eight and a half and nine for the franchise business of McGrath, which is very close to the multiple I've arrived at. I have approached it independently and thoroughly, and the reason my answer is long is because I've thoroughly considered what Mr Mullins has said and undertaken the analysis.”

I do not have any concerns about the independence of Ms Conoulty. I am satisfied that the opinions which she expressed represented her assessment, based on her specialised knowledge, of the issues raised with her, and were given following her careful consideration of Mr Mullins’ opinions and the basis for them.

Matters of agreement and disagreement

The experts were asked to provide their opinions on the enterprise value and equity value of various entities in the LJ Hooker Group (including LJ Hooker Ltd, LJH RES, LJHRES Holdings, Empireal, and MF LJH Nominees) as at three points in time: the “Pre-VA Date” (namely, 10 June 2020); the “Post-Restructure Date” (namely, August 2020, following the restructure of the LJ Hooker Group); and the “Current Date”.
The experts agreed that the “sum of the parts” methodology was an appropriate valuation methodology for assessing the enterprise value and equity value of the various entities as at each of those dates.
Further, the experts agreed on the values of the non-Business assets and liabilities to be brought to account in assessing the enterprise value and equity value of these entities as at each of those dates.
The experts also agreed that, in order to take into account the impact of the COVID-19 pandemic during 2020, the Core Business should be valued as at 31 December 2019, with:
a 30% discount being applied to that value in order to determine the value of the Core Business as at the Pre-VA Date; and
a 42.5% discount being applied to that value in order to determine the value of the Core Business as at the Post-Restructure Date.
The only integer to the valuation of these entities in respect of which there was disagreement between the experts was the value of the Core Business as at 31 December 2019 and as at the Current Date. That is, the experts agreed on the adjustments and calculations which needed to be made, once the value of the Core Business was known as at each of those dates, in order to determine the enterprise value and the equity value of each of the relevant corporate entities as at each of the Pre-VA Date, the Post-Restructure Date and the Current Date.
The experts agreed that the Core Business should be valued under the “capitalised maintainable earnings” (CME) methodology. The fundamental point of dispute between the experts was whether, under the CME methodology:
an EBITDA multiple should be applied to maintainable EBITDA (FME(EBITDA)); or
a revenue multiple should be applied to maintainable revenue.
Ms Conoulty was of the opinion that the former should be adopted, and Mr Mullins the latter.
As a related matter, Mr Mullins disagreed with Ms Conoulty’s opinion that certain businesses which were located overseas (the International Companies) were appropriate comparators for determining the EBITDA multiple for the Core Business.

Principal matters in dispute between experts

By reason of the findings I have made, it is unnecessary to determine the controversies that arise on the expert evidence. However, in case I have erred in making my findings on liability, I have set out below the findings that I would have made on the principal matters in dispute between the experts. In doing so, I have not sought to address each of the opinions expressed by the experts in relation to those matters, but have instead stated the determinations which I would have made and the main reasons for those determinations.

Approach adopted by Mr Mullins based on maintainable revenue

Mr Mullins determined a revenue multiple by reference to two Australian companies, McGrath and The Agency, which he then applied to maintainable revenue in order to determine the value of the Core Business both as at 31 December 2019 and as at the Current Date (with the value as at 31 December 2019 being used to determine the value as at the Pre-VA Date and the Post-Restructure Date).
Whereas EBITDA differentiates between businesses which are profitable and those which are not, and also differentiates between the extent of profitability, the amount of revenue earned by a business provides no indication as to whether its costs exceeded its revenue, and therefore whether it was a profitable or loss-making business.
There was a significant difference between the EBITDA margins of the Core Business and those of McGrath and The Agency in the two financial years prior to 31 December 2019, as shown by the following figures in the Joint Report:

| | FY18 | FY19 | | McGrath | 5.1% | (7.8%) | | The Agency | (19.3%) | (14.7%) | | Core Business | 38.2% | 36.3% |

Notwithstanding that difference, Mr Mullins determined a revenue multiple by reference to McGrath and The Agency (namely, 0.7x), which he then applied to the Core Business’s maintainable revenue in order to assess its value.
The problem with this approach can be illustrated by assuming that each business had the same maintainable revenue of $35m as at 31 December 2019 (being the figure that Mr Mullins determined for the Core Business). In this scenario, Mr Mullins would assess the value of each business as being the same: that is because the same revenue multiple of 0.7x would be applied to the same revenue figure, producing a valuation of $24.5m for each business as at 31 December 2019. The valuation would therefore take no account of the fact that the Core Business had, in each of FY18 and FY19, generated substantial profits from its revenue, while The Agency had made a substantial loss in both of those years, and McGrath had made a small profit in one and a small loss in the other.
However, as Ms Conoulty pointed out (by reference to a number of valuation texts), firms with higher profit margins tend to sell for higher revenue multiples.
Mr Mullins accepted that “all other things being equal, a higher margin business will attract a higher valuation multiple, and a lower margin business will attract a lower valuation multiple”.
In addition, Mr Mullins accepted the following propositions:

“[SENIOR COUNSEL FOR EMPIREAL]: The flaw in the approach that you’ve taken in using a revenue multiple is that it treats all revenue as equal, doesn’t it?

Mr Mullins: Yes, I guess, yes.

[SENIOR COUNSEL FOR EMPIREAL]: And that’s irrespective of whether that revenue results in the business making an EBITDA profit or loss, correct?

Mr Mullins: As one of several factors, but yes.”

Mr Mullins agreed that the revenue multiple which he applied equated to an EBITDA multiple of approximately 2x as at 31 December 2019, and 1.13x as at the Post-Restructure Date. He also conceded, by reference to a “deal tracker” published by Grant Thornton which identifies the multiples of various Australian mergers and acquisitions, that all of the EBITDA multiples so identified were “considerably higher” than a multiple of 2x or less.
Having regard to those matters, I accept Ms Conoulty’s view that a revenue multiple should not be adopted without making “some significant adjustments to it to allow for the different EBITDA margins”. However, Mr Mullins acknowledged that he had not adjusted his revenue multiple so as to account for the difference in profitability between, on the one hand, the Core Business and, on the other, McGrath and The Agency.
For those reasons, I would have determined that the revenue approach adopted by Mr Mullins was not an appropriate basis for determining the value of the Core Business either as at 31 December 2019 or as at the Current Date.

International comparables

The International Companies which Ms Conoulty identified as comparable to the Core Business for the purpose of determining an EBITDA multiple as at 31 December 2019 were Foxtons Group plc; Countrywide plc; RE/MAX Holdings, Inc.; Realogy Holdings Corp; Bridgemarq Real Estate Services, Inc.; and APAC Realty Limited.
Each of those companies operated, as at 31 December 2019, a real estate business in various overseas markets (including the United Kingdom, the United States of America, Canada and Singapore).
Similarly, the comparable transactions which Ms Conoulty identified included transactions in 2016-2018 involving real estate businesses in the United Kingdom, Japan, Germany and Canada.
In a number of cases, the International Companies had revenue in an order of magnitude vastly greater than that of the Core Business. For example, in the 2019 calendar year, Countrywide in the United Kingdom had revenue of $914m, and Realogy in the United States had revenue of around $8.1bn, whereas in FY19 the Core Business had revenue of $34m. That is, the Core Business had around 3.7% of Countrywide’s revenue, and around 0.4% of Realogy’s revenue.
Notwithstanding those matters, Ms Conoulty explained the reasons why she considered the International Companies which she selected to be comparable to the Core Business for the purposes of determining an EBITDA multiple, including that:
the EBITDA multiples of the International Companies, with the exception of one clear outlier (Foxtons), fell within a relatively confined range, and in FY18 (being the last financial year prior to 31 December 2019 when McGrath had been profitable) the EBITDA multiple of McGrath was higher than the average and median of those International Companies;
the forecast growth for the real estate industry in Australia as at 31 December 2019 was in line with the figures for the United Kingdom, the United States and Canada;
the beta factor of McGrath and The Agency as at 31 December 2019 (being a measure of the risk of a company) was in line with or lower than the beta factors for the selected International Companies;
it is not uncommon for valuers in Australia to have regard to international companies when valuing an Australian business (in this regard, Ms Conoulty specifically referred to the Lonergan Edwards R****eport dated June 2024, which was prepared in respect of the 2024 McGrath Transaction and which referred to three of the same International Companies that Ms Conoulty selected); and
Mr Hooker himself identified, in a spreadsheet which was attached to the “For Your Eyes Only” Email (see paragraph [78] above), the International Companies which Ms Conoulty selected as being comparable to the Core Business.

“…your Honour would be entitled to say I am going to discount the figure, either reduce the multiple or discount the overall figure, having regard to what your Honour perceives in relation to the lack of comparability, and your Honour would apply a discount in that circumstance…”

In the present case, I would have determined that there needed to be an adjustment to the EBITDA multiple selected by Ms Conoulty, in order to take account of the differences in size between the International Companies and the Core Business, and to take account of the significant risk of error where a multiple is selected by reference to companies operating in different economies and markets (without any detailed analysis being undertaken of any factors found in particular markets or economies, which were not present in Australia and which might impact the assessment of value). I return below to address the extent of the adjustment that I would have made.

EBITDA multiple as at the Current Date

As at the Current Date, Ms Conoulty determined the EBITDA multiple primarily by reference to the 2024 McGrath Transaction, which she considered “to be a strong benchmark to the [Core] Business”.
There was a dispute between the experts as to the method for determining the EBITDA multiple implied by the 2024 McGrath Transaction.
Ms Conoulty was of the opinion that only the most recent 12 months of EBITDA prior to the 2024 McGrath Transaction should be used to calculate McGrath’s EBITDA multiple. As at the date of the 2024 McGrath Transaction, the most recent reported figures for McGrath were those as at 31 December 2023. Ms Conoulty calculated McGrath’s EBITDA for the 12 months up to 31 December 2023 to be $7.5m, and its enterprise value to be $69.2m. This resulted in an EBITDA multiple of 9.2x. Having regard to that figure, Ms Conoulty adopted an EBITDA multiple of 9.0x for the purposes of valuing the Core Business as at the Current Date.
In contrast, Mr Mullins was of the opinion that McGrath’s EBITDA in each of the three financial years preceding the 2024 MacGrath Transaction (namely, FY21, FY22 and FY23) should be averaged for the purpose of calculating the EBITDA multiple implied by the 2024 McGrath Transaction. On that basis, Mr Mullins determined that an EBITDA multiple of 4.9x was implied by the 2024 McGrath Transaction.
In the Joint Report, Ms Conoulty stated that Mr Mullins’ approach reflects a two-thirds weighting on McGrath’s performance in FY21 and FY22, in circumstances where:
there was a clear decline in the EBITDA of each of McGrath and the Core Business in FY23, compared to the performance in FY21 and FY22;
there was also a clear decline in the revenue of McGrath, the Core Business and the broader industry in FY23, with revenue not being forecast to recover to FY22 levels; and
any expected growth in earnings should be reflected in the EBITDA multiple and not in the FME(EBITDA).
Ms Conoulty further opined that there was an inconsistency in the approach adopted by Mr Mullins because:
on the one hand, Mr Mullins agreed with Ms Conoulty’s calculation of the FME(EBITDA) for the Core Business as at the Current Date, which did not place any weight on FY21 and FY22 (which years were affected by the COVID-19 pandemic and the government’s response to it);
however, Mr Mullins placed two-thirds weight on the EBITDA of McGrath in FY21 and FY22 in calculating the EBITDA multiple implied by the 2024 McGrath Transaction.
Ms Conoulty noted that, if the FME(EBITDA) of the Core Business, as at the Current Date, had been calculated by placing two-thirds weight on the EBITDA of the Core Business in FY21 and FY22, the FME(EBITDA) would have been assessed as $10.8m (and if Mr Mullins’ EBITDA multiple of 4.9x had been applied to this figure, it would have resulted in a valuation of around $53m at the Current Date, which is not materially different from Ms Conoulty’s midpoint valuation of $54.9m).

“The dependence of PE ratios on current earnings makes them particularly vulnerable to the year-to-year swings that often characterise reported earnings. In making comparisons, therefore, it may [make] much more sense to use normalized earnings. The process used to normalize earnings varies widely, but the most common approach is a simple average of earnings across time. For a cyclical firm, for instance, you would average the earnings per share across a cycle… If you do decide to normalize earnings for the firm you are valuing, consistency demands that you normalize them for the comparable firms in the sample as well.” (emphasis added)

not materially different to the approach adopted in the Lonergan Edwards Report, which involved giving a weighting of 25% to FY21, 25% to FY22, and adopting the average result in FY20, FY23 and LTM23 for the balance.

Determination of EBITDA multiple

Senior Counsel for Empireal submitted that, in relation to the EBITDA multiple as at the Current Date, it would be open to the Court to “adjust the multiple having regard to all the evidence that's before your Honour, and pick a number that your Honour thought was appropriate between those two [that is, between the multiples of 4.9x and 9x which were proposed by, respectively, Mr Mullins and Ms Conoulty] and apply that to the agreed future maintainable earnings”.
I accept Mr Mullins’ opinion that, in determining the EBITDA multiple implied by the 2024 McGrath Transaction, regard should be had to the EBITDA of McGrath not only for FY23, but also for FY21 and FY22.
However, I consider that those prior years, while still being taken into account, would be given less weight than FY23 (having regard to the matters raised by Ms Conoulty, including the downturn in revenue experienced by McGrath and the broader industry from FY21 to FY23).
Accordingly, I consider that it would be appropriate to give, in a manner similar to the Lonergan Edwards Report (to which both experts referred), a 25% weighting to each of FY21 and FY22, and a 50% weighting to FY23. On my calculations, this would result the EBITDA multiple implied by the 2024 McGrath Transaction around 6x.
I would not simply adopt this figure, given that, in arriving at a multiple of 9x as at the Current Date, Ms Conoulty, while viewing the 2024 McGrath Transaction as a strong benchmark, also had regard to the EBITDA multiples of the International Companies.
Having regard to the range of EBITDA multiples for the International Companies set out in Ms Conoulty’s report, I would have selected a multiple of 7x as at the Current Date. This is slightly higher than the multiple implied by the 2024 McGrath Transaction (calculated on the basis outlined above), and is at the bottom of the range of EBITDA multiples for the International Companies as at the Current Date (though well below the median, having regard to the differences in size to which I have referred).
In determining the appropriate adjustment to be made to Ms Conoulty’s EBITDA multiple as at 31 December 2019 in order to account for the difference in size between the Core Business and the International Companies, and the risk of error in selecting a multiple based on the International Companies, I would have had regard to the fact that each of Ms Conoulty (on her EBITDA approach) and Mr Mullins (on his revenue approach) concluded that the capitalisation multiples for the Core Business were the same as at 31 December 2019 and as at the Current Date. I would also have regard to the fact that, on Ms Conoulty’s analysis, the median of the EBITDA multiples for the International Companies was almost the same as at both 31 December 2019 (10.5x) and as at the Current Date (11x).
In light of those matters, I would have determined that an EBITDA multiple of 7x should also be adopted as at 31 December 2019. This represents a discount of around 20% to the EBITDA multiple selected by Ms Conoulty as at 31 December 2019. There is necessarily an element of arbitrariness to this discount. In arriving at the level of the discount, I have sought to give weight to Ms Conoulty’s assessment that the International Companies are sufficiently comparable to provide a basis for determining an EBITDA multiple for the Core Business, while also giving weight to Mr Mullins’ opinion that there is an increased risk of error in circumstances where allowance has not been made for differences in economies and markets in which the various entities operate, and, in addition acknowledging that, as is common ground between the experts, smaller listed companies generally trade on lower multiples than large listed companies.

Calculating quantum of relief and election

In the event that liability and causation had been established, it would have been necessary, in order to determine the quantum of any account of profits or equitable compensation, for the findings outlined above in relation to the value of the Core Business as at the Pre-VA Date, the Post-Restructure Date and the Current Date to be factored into the experts’ assessment of the enterprise value and equity value of the relevant corporate entities as at each of those dates.
On the basis that, as I understand the position, there was agreement between the experts as to the adjustments and calculations necessary, once the value of the Core Business was assessed, in order to determine the enterprise value and equity value of each of those entities at each of those dates, this would have been a straightforward task.
I would have directed the parties to undertake this exercise. Presuming those figures would be able to be agreed between the experts once the value of the Core Business was determined (as I understand to be the case), it would then have been a matter for Empireal to make an election as to whether it sought equitable compensation or an account of profits, or whether, in light of any such adjustments, it instead sought orders for the imposition of a constructive trust.
In that regard, three further points should be noted.
The first concerns the quantification of equitable compensation. For the reasons given above, if I had made the Assumed Set of Findings, I would have found that the measure of the loss suffered by Empireal as a result of Empireal, LJHRES Holdings and LJH RES being placed into voluntary administration and the consequent restructure of the LJ Hooker Group would be the difference between the value of Empireal’s assets (namely, its shareholding in LJHRES Holdings) before and after the restructure of the LJ Hooker Group.
Empireal submitted that the amount of this difference was $38.9m, being the difference between Ms Conoulty’s midpoint assessment of the equity value of LJHRES Holdings as at the Pre-VA Date ($38.9m) and her assessment of the equity value of the LJHRES Holdings as at the Post-Restructure Date (nil).
It is common ground that the equity value of LJHRES Holdings following the restructure was nil. However, there are two problems with the figure of $38.9m put forward by Empireal as the equity value of LJHRES Holdings prior to the restructure.
First, that value is derived by Ms Conoulty on the basis of various adjustments being made to her assessment of the value of the Core Business as at 31 December 2019 (and her valuation of the Core Business as at that date would need to be reduced, for the reasons given above).
Secondly, Empireal sought to quantify the loss that it had suffered as a result of the restructure by comparing the value of its interest in LJHRES Holdings as at 10 June 2020 (that is, the Pre-VA Date) with the value of its interest in that entity following the implementation of the LJH RES and LJHRES Holdings DOCAs in August 2020 (that is, the Post-Restructure Date). The difficulty with this approach is that it is common ground between the experts that there was a substantial decline in the value of the Core Business in the period between 10 June 2020 and August 2020, which was due to the COVID-19 pandemic. In particular, the experts agreed that, whereas the value of the Core Business as at 10 June 2020 represented a 30% discount to its value as at 31 December 2019, the value of the Core Business as at August 2020 represented a 42.5% discount to its value as at 31 December 2019.

Conclusion and Orders

For the reasons given above, I have determined that Empireal has not established any of its claims against Mr Hooker.
It follows that the proceeding will be dismissed, with costs.
In closing written submissions, Mr Hooker stated that “[w]hether it will be submitted that those costs should be ordered on an indemnity basis is a matter upon which Mr Hooker will decide in closing oral submissions”. No such submission was advanced by Senior Counsel for Mr Hooker in closing oral address. Costs will be awarded on the ordinary basis.
Accordingly, I make the following orders:
The Originating Process filed 24 July 2023 is dismissed.
The Plaintiff pay the Defendant’s costs of the proceeding, as agreed or assessed.

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In the matter of Empireal Ltd (in Liq) (Receiver and Manager Apptd)

At a glance

Court

Decision date

Before

Catchwords

Source

Email me a plain-English brief of this case

Catchwords

Judgment

JUDGMENT

Factual Background

Corporate Structure prior to 8 August 2020

The Koi Facility

The ICG Facility

Amendment and Restatement Agreement

Potential investment by IWI

Correspondence in March 2020 in response to COVID-19

Notice of Outstanding Payments and Olympus IC memorandum of April 2020

Emails in April 2024 in relation to potential restructure

Project Cork Report prepared by KPMG

“X File” Email

IWI investment fails to proceed – “delinking” proposal by Mr Agarwal

Two versions of the 13 May 2020 Gilbert + Tobin Advice

Telephone call between Mr Agarwal, Mr Fuchs and Mr Weir

“Consensual sale” proposal and further advice from Gilbert + Tobin

Analysis of Restructuring Options

Further steps in preparation for restructure

The Restructuring Support Deed is negotiated

Entities placed into voluntary administration

Communications between Mr Hooker and Mr Agarwal following VA Resolutions

Events on 11 June 2020

Entry into the Restructuring Support Deed

Appointment of Administrators and Ausreal offer

Koi issues Notice of Default

Events leading up to First Meetings of Creditors

Establishment of various MF LJH entities and dealings between Mr Hooker and Mr Fuchs

Further DOCA Proposals submitted

Convertible Loan Agreement and Side Letter

Events leading up to the Second Creditors’ Meeting

Redemption of RP Shares held by LJHRES Holdings for $1.00

Consequences of the Restructure

2021 Option Agreement

Commencement of proceeding

Overview of Empireal’s claims

Relevant Principles

The “conflict rule” and the “profit rule”

Duty to act for a proper purpose

Duty to act in the best interests of the company

Improperly gaining an advantage or causing detriment

Duty to prevent insolvent trading

Seriousness of allegations

Credit

Mr Agarwal

Mr Hooker

Mr Hooker’s reasons for voting in favour of the VA Resolutions

Who is alleged to have been involved in Mr Hooker’s dishonest conduct?

Significance of “For Your Eyes Only” Email and “X File” Email

When was the decision to place the companies into administration taken?

Dishonesty in dealings with Koi?

Removal of slides from version of KPMG’s Project Cork Report provided to Koi

Amendments to Gilbert + Tobin’s email of 13 May 2020

Statements made in course of 10 June 2020 telephone call

Mr Hooker’s evidence regarding the “Reasons” Document

“Reasons” Document – Statements about LJX and LJX Holdings

“Reasons” Document – Statements about Empireal

No demand had been issued by Koi

Was Koi supportive?

Position of Empireal Holdings?

Was Empireal in fact insolvent as at 10 June 2020?

Conclusion

“Reasons” Document – Statements about LJH RES

Reduction in cash flow

Breach of borrowing ratio covenant

Upcoming payments of interest

Amount owing to ATO

Conclusion

“Reasons” Document – Statements about LJHRES Holdings

Mr Hooker’s interest in the restructure of the LJ Hooker Group

Conclusion – reasons for voting in favour of VA Resolutions