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[2025] NSWSC 240
Supreme Court of NSW
2025-03-21
Nixon J
Original judgment source is linked above.
Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.
Medium Neutral Citation: In the matter of Keybridge Capital Limited [2025] NSWSC 240
Hearing dates: 5 – 7 March 2025
Date of orders: 21 March 2025
Decision date: 21 March 2025
Jurisdiction: Equity - Corporations List
Before: Nixon J
Decision: (1) Declare that:
(a) on 10 February 2025 at 4:30pm, Keybridge validly held a meeting of its members convened in accordance with s 249F of the Act;
(b) at the Section 249F Meeting, the members of Keybridge resolved that Mr Bolton, Mr Patton and Mr Dukes be removed as directors of Keybridge and that Mr Wilson, Mr Hamilton, Mr McCathie and Mr Ravell be appointed as directors of Keybridge; and
(c) following the Meeting on 10 February 2025, the directors of Keybridge were:
(i) Mr Catalano;
(ii) Mr Wilson;
(iii) Mr Hamilton;
(iv) Mr McCathie; and
(v) Mr Ravell
(2) Stand over the proceedings for directions to 1 April 2025 at 9.15am before Nixon J.
Catchwords: CORPORATIONS – general meetings – meeting convened by notice given to members – business of meeting was to consider resolutions to remove and replace directors – directors knew that sufficient proxies cast for resolutions to be carried – directors resolved to appoint a voluntary administrator on the evening before the meeting – chairperson, who was a director, opened the meeting and purported to adjourn the meeting sine die without putting any resolutions to shareholders – following purported adjournment, shareholders present at meeting purported to elect new chairperson who put resolutions to a vote – whether purported adjournment sine die was within power – whether purported adjournment was for a proper purpose – whether meeting continued following purported adjournment – whether resolutions were passed
CORPORATIONS - voluntary administration – whether there was a proper basis for directors to form the opinion that the company was insolvent or likely to become insolvent – whether the administrator was appointed for an improper purpose – whether, if the appointment was valid, the Court should order that the administration is to end
Legislation Cited: Corporations Act 2001 (Cth) ss 140, 173, 203D, 249F, 250V, 250W, 436A, 447A, 447C, 448C, 606, 1305, 1322.
Cases Cited: Australian Karting Association Ltd v Karting (New South Wales) Incorporated [2022] NSWCA 188
Australian Money Exchange Pty Ltd (in liq) v Llewellyn [2024] VSC 511
Australian Securities and Investments Commission v Planet Platinum Ltd [2016] VSC 120
Byng v London Life Association Ltd [1990] Ch 170
Cadwallader v Bajco Pty Ltd [2001] NSWSC 1193
Cawthorn v Keira Constructions Pty Ltd (1994) 33 NSWLR 607
Central Exchange Ltd v Rivkin Financial Services Ltd [2004] FCA 1546
Commonwealth Bank of Australia v Fernandez [2010] FCA 1487
Fox v Percy (2003) 214 CLR 118; [2003] HCA 22
HNA Irish Nominee Ltd v Kinghorn [2010] FCAFC 57
Howard Smith Ltd v Ampol Petroleum Ltd [1974] UKPC 4; [1974] AC 821
In the matter of Condor Blanco Mines Ltd [2016] NSWSC 1196
In the matter of Condor Blanco Mines Ltd (No. 2) [2016] NSWSC 1304
Intergen Energy Holdings (Australia) Pty Ltd, Re Intergen Energy Holdings (Australia) Pty Ltd [2017] FCA 445
Investa Listed Funds Management Ltd [2018] NSWSC 1391
Kazar v Duus (1998) 88 FCR 218
Lancedale Holdings Pty Ltd v Health Group Australia Pty Ltd [1999] NSWSC 609
McKerlie v Drillsearch Energy Ltd [2009] NSWSC 488
National Dwelling Society v Sykes [1894] 3 Ch 159
Onefone Australia v One.Tel [2010] NSWSC 401
Re Lime Gourmet Pizza Bar (Charlestown) Pty Ltd [2015] NSWSC 244
Re Re1 and Re2 (No 3) [2014] NSWSC 762
Smith v Paringa Mines Ltd [1906] 2 Ch 193
St George Bank Ltd v Rangers Club of NSW Inc (1995) 18 ACSR 370
VRM Global Holdings Pty Ltd v Savannah AG Research Pty Ltd (admins apptd), in the matter of Savannah AG Research Pty Ltd [2023] FCA 131
Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285; [1987] HCA 11.
Wishart v Henneberry (1962) 3 FLR 171
Young v Cotter [1996] NSWCA 573
Category: Principal judgment
Parties: WAM Active Limited (First Plaintiff)
Geoffrey James Wilson (Second Plaintiff)
Jesse Michael Hamilton (Third Plaintiff)
Martyn McCathie (Fourth Plaintiff)
Keybridge Capital Limited (Administrator Appointed) (First Defendant)
Gideon Isaac Rathner (Second Defendant)
Nicholas Francis John Bolton (Third Defendant)
John Dean Patton (Fourth Defendant)
Frank Antony Catalano (Fifth Defendant)
Richard Michael Dukes (Sixth Defendant)
Sulieman Ahmad Sulieman Ravell (Seventh Defendant)
Representation: Counsel:
J S Emmett SC / D Krochmalik / D J Monteith (Plaintiffs)
G Gee (First and Second Defendants)
A T Broadfoot KC / A Byrne / A Osborn Brodie (Third, Fourth and Sixth Defendants)
Solicitors:
Mills Oakley (Plaintiffs)
Tisher Liner FC Law (First and Second Defendants)
Cornwalls (Third, Fourth and Sixth Defendants)
File Number(s): 2025/00054507
This proceeding involves a challenge to the appointment of a voluntary administrator to the First Defendant, Keybridge Capital Limited, which occurred on the evening before a meeting of Keybridge’s members to consider resolutions to remove and replace its directors, and a challenge to the purported adjournment of that meeting on the following day, prior to any business being conducted.
The First Plaintiff, WAM Active Limited, is a public company listed on the Australian Stock Exchange (ASX). WAM, together with its associated entities, currently holds approximately 43.5% of the total shares on issue in Keybridge.
Keybridge is also a public company listed on the ASX, although its shares are currently suspended from trading (and, with the exception of two days in August 2024, have been so suspended since 1 March 2024).
On 19 December 2024, WAM issued a notice of general meeting of shareholders of Keybridge pursuant to s 249F of the Corporations Act 2001 (Cth) (the Act) to be held at 10.00am on Monday, 10 February 2025 (the Section 249F Meeting). This notice stated that the business of the meeting was to consider and, if thought fit, to pass resolutions:
to remove Mr Nicholas Bolton (the Third Defendant), Mr John Patton (the Fourth Defendant), Mr Frank Antony Catalano (the Fifth Defendant) and Mr Richard Dukes (the Sixth Defendant) as directors of Keybridge (the Incumbent Directors); and
to appoint Mr Geoffrey Wilson (the Second Plaintiff), Mr Jesse Hamilton (the Third Plaintiff), Mr Martyn McCathie (the Fourth Plaintiff) and Mr Sulieman Ravell (the Seventh Defendant) as directors of Keybridge (the Proposed Directors).
On Sunday, 9 February 2025, the Incumbent Directors unanimously passed a resolution to appoint the Second Defendant, Mr Gideon Rathner, as voluntary administrator of Keybridge. This step was taken on the evening before the Section 249F Meeting was to be held, and after the time for shareholders to submit proxy votes on the resolutions proposed for that meeting had closed. At that time, proxies in respect of more than 50% of the total shares on issue in Keybridge had been received in favour of the resolutions to remove the Incumbent Directors (other than Mr Catalano) and to appoint the Proposed Directors.
On Monday, 10 February 2025 at 9.16am, Keybridge announced to the ASX that Mr Rathner had been appointed as voluntary administrator.
On the same day at around 4.30pm, the Section 249F Meeting opened as scheduled, with Mr Patton as chairperson. He then purported to adjourn the meeting “to a later date” with details of the new time to be provided “in due course”, without putting any of the resolutions to a vote. Shareholders who were present objected to the adjournment and purported to elect a new chairperson, Mr Hamilton. He proceeded to read out the resolutions and put them to a vote. Mr Hamiton declared that all of the resolutions were passed, with the exception of the resolution to remove Mr Catalano.
Purported adjournment of Section 249F Meeting
Purported appointment of Mr Rathner as Administrator
The board of Keybridge did not properly and genuinely form the opinion that Keybridge was insolvent or was likely to become insolvent at some future time.
The board of Keybridge purportedly appointed the voluntary administrator, Mr Rathner, for an improper purpose.
Even if the appointment of the voluntary administrator was valid, the Court should order that the administration is to end under s 447A of the Act.
As regards Issue 4 above, the Plaintiffs acknowledged, in opening written submissions in reply, that the material before the board of directors of Keybridge (Board) on 9 February 2025, which was exhibited to the Defendants’ affidavits, “provided a basis for believing that Keybridge may have been insolvent”. As regards Issue 6, WAM also accepted that “the Court should proceed on the basis that, but for WAM’s letter of comfort, Keybridge may presently be insolvent from a cash flow perspective (even though, on a balance sheet basis, its assets exceed its liabilities)”.
Before addressing each of the remaining propositions advanced by WAM, I will make some brief comments about the witnesses and then set out the events leading up to the appointment of Mr Rathner as voluntary administrator and the holding of the Section 249F Meeting, based primarily upon the documentary evidence.
WAM read a number of affidavits in support of its application, including affidavits of Mr Hamilton and of WAM’s solicitor, Ms Reid.
Each of Mr Hamilton and Ms Reid was cross-examined. There was no substantial challenge to the reliability of any aspect of their evidence.
Each of Mr Rathner, Mr Patton, Mr Bolton and Mr Dukes was also cross-examined. There was no challenge to the credit of Mr Dukes.
In respect of Mr Rathner, there were various aspects of his evidence which were said to be unreliable or improbable. I address these issues where they arise below, insofar as they are material.
In respect of Mr Patton and Mr Bolton, Senior Counsel for the Plaintiffs made the following submission in his closing address in reply:
“…for the avoidance of doubt we say very squarely the Court would place no weight on the evidence of Mr Patton or Mr Bolton unless adverse to their interests or supported by independent written evidence, not a document created by themselves. …
As I said, there were a number of matters that you would not accept and we do say to the extent that the defendants' case relies on asking your Honour to accept unsupported oral evidence given yesterday from one of those two witnesses, your Honour would not do so.”
While the Plaintiffs challenged numerous aspects of the evidence of Mr Bolton and Mr Patton regarding the terms of conversations or regarding their state of mind at the time of the critical events, the Plaintiffs did not articulate any basis for the Court to make a global credit finding that the evidence of either of them should be disregarded. I have not made any such finding.
Instead, where the Plaintiffs in the course of cross-examination and submissions challenged specific aspects of the evidence of Mr Bolton and Mr Patton (in particular, concerning their state of mind at the time of the key events), I have assessed such evidence on the basis of contemporary materials, objectively established facts and the apparent logic of events: Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 at [31] per Gleeson CJ, Gummow and Kirby JJ.
On 27 November 2024, I delivered reasons for judgment in respect of WAM’s application for Keybridge to be wound up, or alternatively for leave to pursue a derivative action against the Incumbent Directors (other than Mr Dukes) alleging breaches of director’s duties (the Winding Up Proceeding): WAM Active Limited v Keybridge Capital Limited (No 2) [2024] NSWSC 1496.
I granted leave to bring the derivative action, but dismissed the winding up application.
In respect of the application to wind up Keybridge in insolvency, I found that Keybridge was solvent as at the date of the hearing (at [184]). Relevant matters included that Keybridge had demonstrated an ability to raise equity capital, with WAM having indicated in October 2024 that it was willing to participate to the full extent of its pro rata entitlement in a proposed capital raising; and that Keybridge had demonstrated an ability to obtain bridging finance pending any such capital raising, as shown by an indicative term sheet from Roadnight Capital Pty Ltd (at [183], referring to [125] and [130]). Further, Keybridge had borrowed funds from Yowie Group Ltd, which led to it having significant cash at bank at the time of the hearing (at [176]). Keybridge has a relevant interest of 78.359% in Yowie, and Mr Patton and Mr Bolton were two of the three directors of Yowie, being, respectively, the Chairman and the Chief Executive Officer. The funds loaned by Yowie were repayable on demand. However, WAM’s solvency expert, Mr Olde, acknowledged that, on the basis that Yowie is majority owned by Keybridge, there may be an opportunity to seek forbearance from Yowie in respect of this loan (at [154]). Further, Mr Patton gave evidence at the hearing regarding the financial health of Yowie (at [178]).
In respect of the application to wind up Keybridge on the just and equitable ground, I found (at [288]) that insofar as there has been mismanagement of Keybridge’s affairs by Mr Bolton, Mr Patton and Mr Catalano regarding the matters at issue in that proceeding (being an issue which I did not determine), this was a matter which could be addressed by the derivative suit; and that, in those circumstances, the grant of leave to bring that suit was a sufficient remedy for any oppression in the management of Keybridge’s affairs by those directors. In reaching this conclusion, I noted (at [287]) that WAM did not advance a submission that, as the largest shareholder, it was shut out of any say in the management of Keybridge.
In this regard, I referred to the fact that WAM had previously nominated Mr Wilson, Mr Hamilton and Mr McCathie for appointment as directors of Keybridge, but had withdrawn those nominations before the 2022 Annual General Meeting, and added that:
“On 31 October 2024, Keybridge issued a Notice of AGM, which is to be held on Friday, 29 November 2024. The resolutions to be put to shareholders at the AGM include a resolution to elect Mr Dukes as a director (which is required under Keybridge’s constitution, as he was appointed by the board); a resolution to re-elect Mr Catalano as a director; and an advisory non-binding resolution to adopt the remuneration report (being a resolution in respect of which each director and any closely related party of a director is excluded from voting their shares). In addition, the Notice of AGM includes a contingent resolution to hold a board re-election meeting. That is because, at the 2023 AGM, the remuneration report was not passed by shareholders. This constituted a ‘first strike’. If at least 25% of the votes cast at the 2024 AGM are against adopting the remuneration report, this will constitute a ‘second strike’, and the resolution to hold a board re-election meeting (a ‘spill resolution’) will be put to shareholders as an ordinary resolution pursuant to s 250V of the Act. The consequences of a ‘spill resolution’ being passed are set out in s 250W of the Act. It is uncertain how these matters will play out at the 2024 AGM.”
On 27 November 2024, being the day that judgment was delivered in the Winding Up Proceeding, WAM served on Keybridge a notice of its intention to nominate each of the Proposed Directors for election to the office of a director of Keybridge and requested a copy of the members’ register of Keybridge.
On 29 November 2024, Keybridge’s 2024 Annual General Meeting (2024 AGM) was held. On that day, Keybridge announced to the ASX that at the 2024 AGM:
the resolution to adopting the remuneration report had not been passed (thereby triggering the requirement to put the spill resolution); and
the spill resolution had not been passed, with 48.83% voting in favour, 51.13% against and 0.04% abstaining.
On 9 December 2024, Mr Bolton refused WAM’s request for a copy of Keybridge’s members’ register.
On the same day, WAM served a notice on Keybridge pursuant to s 203D(2) of the Act of its intention to move resolutions at the next general meeting of Keybridge to remove each of the Incumbent Directors.
On 12 December 2024, WAM commenced a proceeding against Keybridge in this Court numbered 2024/462647 (Capital Raising Restraint Proceeding). The relief sought in the Capital Raising Restraint Proceeding included an order that Keybridge provide its members’ register to WAM; a declaration that the spill resolution had been passed at the 2024 AGM; and an injunction restraining Keybridge, until seven days after a meeting of its shareholders is held pursuant to s 249F of the Act, from issuing any equity securities other than by a pro rata issue in accordance with ASX Listing Rule 10.12 Exception 1.
On 16 December 2024, Keybridge gave undertakings in the Capital Raising Restraint Proceeding, without admission, that it would provide its members’ register to WAM and would hold a spill meeting within 90 days of 27 November 2024; and the Court made orders listing the balance of the relief sought in the Originating Process for hearing before me on 10 February 2025.
On 17 December 2024, Keybridge announced to the ASX amended results for the resolutions put at the 2024 AGM, including announcing that the spill resolution had passed, with 48.83% in favour, 34.81% against, and 16.37% abstaining. Having regard to the minutes of a Board meeting on 16 December 2024, the change in the outcome of the poll appears to have been explained by Keybridge having initially counted votes cast on the spill resolution which were cast by Mr Bolton, Mr Catalano and their associates, when such votes “ought to have been removed”.
Although the undertakings in the Capital Raising Restraint Proceeding which are referred to in paragraph [32] above were given without admission, Black J noted, in his judgment on costs in the Capital Raising Restraint Proceeding, that if Keybridge had not given the relevant undertakings:
“Each of the Company’s current directors (excluding the Managing Director), who were in the office when the directors resolved to approve the Company’s Remuneration Report (being Mr John Patton, Mr Antony Catalano and Mr Richard Dukes), will cease to hold office immediately before the end of the meeting and will stand for re-election. Those directors re-elected at the meeting will continue holding office at the end of the meeting.
If a director is re-elected in these circumstances, the Corporations Act provides that the term of office of the director will not be affected, and directors will be subject to retirement and re-election at an AGM of the Company as if the cessation and appointment at the meeting had not occurred.”
Mr Bolton’s position as Managing Director was not affected by the passing of the spill resolution, by reason of s 250V(1)(b)(ii) of the Act.
The notice for the Spill Meeting also including the following resolution, described as “Resolution 7 – Approval to issue New Shares” (Resolution 7):
“That pursuant to and in accordance with Listing Rule 10.11, Shareholders approve the issue of an aggregate of up to 28,327,275 New Shares at an issue price of 5.5 cents per share to certain Directors (or their nominees) and Wilson Asset Management (and its associated entities), subject to the Corporations Act, as follows:
(i) 4,004,479 New Shares to Wilson Asset Management (and its associated entities)
(ii) up to 3,404,612 New Shares to Mr Antony Catalano (and/or his nominees); and
(iii) up to 20,918,184 New Shares to Mr Nicholas Bolton (and/or his nominees);
on the terms and conditions in the Explanatory Statement”.
The Explanatory Statement referred to the number of shares to be issued pursuant to Resolution 7, and indicated that the effect of the proposed placement would be, relevantly, to decrease the voting interest of WAM and its associated entities from 43.52% to 40.11%, and to increase the voting interest of Mr Bolton and his associated entities from 4.29% to 12.38%. The Explanatory Statement said that WAM and its associated entities “were offered 13,615,227 (44.05%) of the total shares proposed for issue and only opted to take up 4,004,479, subject to shareholder approval”.
The Explanatory Statement further stated that:
“The proceeds from the issue of the New Shares are intended to be used towards meeting the extraordinary legal costs associated with the WAM legal action against the Company, debt reduction and general working capital purposes.
…
If Resolution 7 is not passed, … the Company may need to seek an alternative means of raising the additional capital.”
The notice for the Spill Meeting stated that proxies must be received by 10.00am on Saturday, 1 February 2025.
By an announcement to the ASX dated 10 January 2025, Keybridge stated that the meeting time for the Section 249F Meeting was changed from 10.00am to 4.30pm on 10 February 2025, by reason that there was scheduled to be a hearing in the Capital Raising Restraint Proceeding on that day. The ASX announcement set out the Incumbent Directors’ recommendation that shareholders vote against all of the resolutions at the Section 249F Meeting. In addition, the ASX announcement stated that Keybridge considered that WAM and its associated entities and its nominated director Mr Ravell have “breached s. 606 of the Corporations Act by going from a voting interest in Benjamin Hornigold Limited below 20% to a voting interest above 20% by virtue of the association”.
Keybridge subsequently issued a replacement notice for the Section 249F Meeting with the changed meeting time. This notice stated that proxies had to be received by 4.30pm on Saturday, 8 February 2025.
On 14 January 2025, the solicitors for WAM wrote to Keybridge’s solicitors, Gadens, stating (among other things) that WAM wanted a third party scrutineer to be appointed for each of the Section 249F Meeting and the Spill Meeting.
On 17 January 2025, Mr Bolton provided a copy of Keybridge’s members’ register to WAM.
On 20 January 2025, WAM filed an application in the Capital Raising Restraint Proceeding, seeking an injunction to restrain Keybridge from holding a general meeting to vote on Resolution 7. In the supporting affidavit, WAM’s solicitor, Ms Reid, deposed that WAM was never invited to, and had not agreed to, participate in “the capital raising in the dilutory form described in resolution 7”; and that WAM was concerned that:
Keybridge had, with notice of the Section 249F Meeting, called the Spill Meeting for the week prior to the Section 249F Meeting; and
Keybridge was proposing to issue 9.97% of its total issued capital to Mr Bolton (or his nominees), who was the subject of a resolution seeking his removal as a director which was to be put at the Section 249F Meeting.
On 21 January 2025, WAM’s solicitors repeated the request that Keybridge appoint an independent observer for each of the Spill Meeting and the Section 249F Meeting. (On 28 January 2025, WAM’s solicitors followed up on this request, having not received any response.)
On 22 January 2025, Keybridge announced to the ASX that the Spill Meeting (including Resolution 7) which had been scheduled for 3 February 2025 at 10.00am would now be held on 4 February 2025 at 4.30pm.
On 30 January 2025, WAM’s application for an interlocutory injunction restraining Keybridge from putting Resolution 7 to a meeting of its shareholders was heard by Faulkner J (January Court Hearing).
The evidence at the January Court Hearing included an affidavit sworn by Mr Patton on 24 January 2025, in which he deposed that the Roadnight bridging facility was no longer available to Keybridge; that Keybridge owed $4,483,345 plus interest to Yowie; and that Yowie had informed Keybridge that it would “shortly require [its] loans to be repaid, at least in part, so that it can fund its operations”.
Mr Patton also gave evidence, by way of an affidavit sworn on 16 January 2025, that restricting Keybridge’s raising of capital “could materially affect its solvency, especially given the loans which have been advanced by Yowie to Keybridge, which are on an at-call basis”.
In respect of the balance of convenience, Keybridge submitted at the January Court Hearing that it had “urgent needs for capital” to pay discharge liabilities, including to its solicitors, Gadens. However, Keybridge did not, in terms, submit that it was likely to, or might, become insolvent if the Court granted an injunction restraining Keybridge from putting Resolution 7 to a meeting of its shareholders.
Further, Senior Counsel for Keybridge did not dispute that one option that had been available to Keybridge was to raise capital on a pro rata basis, instead stating that Keybridge was not obliged to do so, and was unwilling to do so, having regard to the “very antagonistic relationship” between Keybridge and WAM “over a very lengthy period”:
“HIS HONOUR: But if the objective of Keybridge is to raise money because it’s in desperate need, why does it not simply, … why haven’t they sought to have a capital raising which is pro rata in the sense at the end of it, the voting power of [WAM] will not be diluted?
[SENIOR COUNSEL FOR KEYBRIDGE]: Your Honour, perhaps there are a few points to make. One is that the urgency of the capital climate has increased over time.
HIS HONOUR: Yes.
[SENIOR COUNSEL FOR KEYBRIDGE]: What has become urgent is the requirement to pay Gadens by 5 February. … and … there was no requirement for any capital raising to be pro rata.
HIS HONOUR: There’s no legal requirement but you’re in desperate need of money. There is a strong commercial requirement to raise the money on terms acceptable to WAM. Why not simply go down that path?
[SENIOR COUNSEL FOR KEYBRIDGE]: Because the misconception perhaps which may arise in this context is that [Keybridge]is under no obligation to come to an agreement with one of its shareholders as to how to raise capital.
HIS HONOUR: There’s no legal obligation. I’m asking about the commercialities. You’re in desperate need of money. If it’s raised on a pro rata basis in the sense that I’ve described, it’s harmless from Mr Bolton’s point of view, and the problem which you are contending will constitute weighty prejudice if the meeting is constrained wouldn’t exist.
[SENIOR COUNSEL FOR KEYBRIDGE]: The company and the board’s obligation is to act in the best interests of the company, not to cater for the desires of one shareholder.
HIS HONOUR: No.
[SENIOR COUNSEL FOR KEYBRIDGE]: And of course, the Court does not have before it all of the commercial circumstances that may be relevant to the board’s consideration about whether to pursue one particular funding model or another.
HIS HONOUR: Yes.
[SENIOR COUNSEL FOR KEYBRIDGE]: But the starting point we say is that there should not be an assumption that the only commercially satisfactory result would be one that [WAM]agrees with.
HIS HONOUR: No.
[SENIOR COUNSEL FOR KEYBRIDGE]: And indeed, your Honour knows that the parties have had a very antagonistic relationship over a very lengthy period.
HIS HONOUR: Yes, but I’m trying to assess the degree of urgency.
[SENIOR COUNSEL FOR KEYBRIDGE]: Yes.
HIS HONOUR: And I’m considering, I mean, it’s urgent but not urgent enough to do a deal with WAM to raise the capital. …”
“We actually have no cash to pay for anything until this raise completes
Let alone staff and lawyers
The court runs the real risk of a voluntary administrator being appointed
If we can’t raise capital”
“… there doesn’t seem to be any reason I can see in the evidence about why Keybridge could not pursue a capital raising in terms wholly acceptable to WAM and thereby raise the funds Keybridge says it needs urgently. I certainly accept that Keybridge is not obliged to pursue that course legally, but commercially it may be in Keybridge’s interests to do so.
Obviously I do not know all the commercial implications, but it is a matter which may inform the purpose for which resolution 7 is being put.”
On 21 January 2025, Keybridge lodged two applications with the Takeovers Panel, one in relation to the affairs of Benjamin Hornigold and the other in relation to its own affairs. Keybridge submitted, among other things, that WAM, Mr Ravell, Mr Wilson of WAM, and Mr Glennon of Benjamin Hornigold:
were acting in concert to gain control of assets in Keybridge;
were associates holding collective voting power of 51% in Benjamin Hornigold; and
“have obtained that interest in contravention of s606 of the Act and have orchestrated a s249F meeting to further their agenda”.
On 3 February 2025, the Takeovers Panel declined to conduct proceedings in relation to Keybridge’s applications. The Panel considered “that Keybridge did not demonstrate a sufficient body of evidence of association between all or any” of the persons in question, adding that:
“The Panel also considered that even if an association exists between any or all of the alleged associates (including WAM and Ravell) in relation to the affairs of Keybridge or BHD, it was unlikely to conclude that such an association gives rise to an acquisition of shares through a transaction leading to a contravention of section 606 on the bases submitted in the Applications.”
Further, the Panel considered that even if a contravention of s 606 had occurred, it was unlikely to be in the public interest to make a declaration of unacceptable circumstances, in circumstances where the applications substantially overlapped with matters raised in pending proceedings in this Court and formed part of a broader dispute between WAM and Keybridge.
For those reasons, the Panel “concluded there was no reasonable prospect that it would make a declaration of unacceptable circumstances”.
On 31 January 2025, WAM’s solicitors informed Keybridge’s solicitors that WAM had lodged its proxy for the resolutions regarding the re-election of directors to be put at the Spill Meeting, and that it had voted “to remove Mr Patton, only” and had voted “in favour of Mr Dukes and Mr Catalano remaining on the board prior to the 249F Meeting”.
Also on 31 January 2025, Mr Catalano sent Mr Bolton a text message saying that he was going to vote against Mr Patton at the Spill Meeting, and Mr Bolton passed this information on to Mr Patton. Mr Patton was aware of the significance of this development:
“Q. You knew that Mr Catalano's votes together with WAM's votes would be enough to remove you?
A. Absolutely.”
Mr Bolton confirmed in cross-examination that he, too, was aware that “Mr Catalano’s votes and WAMs votes if counted would be enough to remove Mr Patton”.
On 2 February 2025, Mr Bolton and Mr Patton exchanged text messages regarding circumstances in which, according to “ChatGPT”, “a director can’t us[e] their shares to vote to change a board”. It is evident, having regard to Mr Catalano’s recent indication of his voting intentions, that Mr Bolton and Mr Patton were considering whether there was some basis to exclude Mr Catalano’s votes.
At this stage, the Spill Meeting was still scheduled to be held on 4 February 2025. On Saturday, 1 February 2025, Mr Bolton sent an email to the other members of the Board, proposing that the Spill Meeting be postponed. In this email, Mr Bolton stated that the Takeovers Panel had “effectively said whilst we’re in court with WAM on chapter 6 issues we should be raising our [Benjamin Hornigold] chapter 6 issues in that same proceeding”.
On Monday, 3 February 2025, the Board met via GoogleMeet and approved an ASX announcement postponing the Spill Meeting to 18 February 2025 at 10.30am. The minutes of this meeting record that Mr Bolton noted that, whether or not Resolution 7 was passed, in order “to win a shareholder meeting, WAM need to get the support of any one large shareholder (Catalano, Bolton, ASG or Aurora)”.
• “postpone or cancel the 249F Meeting without the prior written consent of WAM Active;
• adjourn the 249F Meeting or any business, motion, question or resolution being considered or remaining to be considered by the 249F Meeting; or
• suspend the proceedings of the 249F Meeting other than a short suspension for the purposes of allowing a poll to be taken or determined.”
“looks like any postponement of the 249F meeting requires WAM consent. I’ve double checked and that looks to be the case. [WAM’s solicitors] also state this in their letter received a short time ago”
Mr Patton: “The more I think about it, the more I believe you need to talk or meet with Ant [Mr Catalano] to sort things out. You just need to find a way to make it happen”
Mr Bolton: “7.6(d) allows a chairman to postpone before the meeting begins”
“The chairperson may postpone the meeting before it has started, whether or not a quorum is present, if, at the time and place appointed for the meeting, he or she considers that:
(1) there is not enough room for the number of members who wish to attend the meeting; or
(2) a postponement is necessary in light of the behaviour of persons present or for any other reason so that the business of the meeting can be properly carried out.”
It appears, from Mr Bolton’s reference to rule 7.6(d) of the Constitution, that he and Mr Patton were considering, on 4 February 2025, whether Mr Patton as chairperson could (notwithstanding the terms of rule 7.1(b)) unilaterally postpone the Section 249F Meeting, without WAM’s consent, before it commenced.
No steps were subsequently taken to postpone the Section 249F Meeting prior to its commencement, whether pursuant to rule 7.6(d) or otherwise.
“In these discussions it was clear that the company had little cash available, and I had formed the view that the company was simply unable to pay the debts that were due to be paid by it.”
Late on the evening of 4 February 2025, Mr Bolton and Mr Rathner exchanged text messages, arranging to meet on the afternoon of the following day at around 3.00pm.
On 5 February 2025, WAM’s solicitors sent an email to the Court, foreshadowing an expansion of the issues which would need to be considered in the Capital Raising Restraint Proceeding which had been listed for hearing on 10 February 2025, and requesting that the matter be listed for directions on 7 February 2025. The Court responded shortly afterwards that the Capital Raising Restraint Proceeding would be listed for directions before me at 3.00pm on 7 February 2025 and that the hearing on 10 February 2025 would be vacated. The parties were notified that the next available hearing dates were 19-21 February 2025 or 5-7 March 2025.
On 5 February 2025 at 2.35pm, Mr Catalano sent an email to Mr Bolton, Mr Patton and Mr Dukes, which was headed “Financial position”. Mr Catalano stated that it appeared from updates which he had “received over the last few days” that Keybridge “may be in an uncertain financial position”. He referred, among other things, to the injunction restraining Resolution 7 from being put to members and the amount of around $750,000-$800,000 which was owed to Keybridge’s solicitors, who had “put down their pens”. Mr Catalano stated that he was “concerned as a director to ensure that we manage and avoid any risks of trading whilst insolvent in the interests of [Keybridge’s] shareholders and creditors as appropriate”. He outlined various financial information which he required for the purposes of considering Keybridge’s position, and proposed that the provision of this information be discussed at the Board meeting later that day “so that we can be fully up to date on the company’s actions to address its current liquidity issues”.
On the afternoon of 5 February 2025, Mr Bolton met Mr Rathner. Mr Bolton told him that Keybridge was “asset rich and cash poor”, and there was some discussion regarding the matters which had led to Keybridge’s current position including what had changed since the Winding Up Proceeding. Mr Rathner suggested that Mr Bolton obtain Senior Counsel’s advice in relation to solvency, and indicated that, if Keybridge intended to proceed to voluntary administration, Mr Rathner would obtain his own advice relating to solvency and his ability to take an appointment as voluntary administrator. I deal with WAM’s submissions regarding this meeting and regarding Mr Rathner’s prior dealings with Keybridge when considering below the issue of Mr Rathner’s independence.
Following this meeting, Mr Bolton took steps to brief Mr Broadfoot KC to provide an advice on the solvency of Keybridge.
On the evening of 5 February 2025, there was a meeting of the Board of Keybridge. There was an extended discussion regarding the financial position of Keybridge. In the course of this discussion, Mr Catalano “asked if the Company was solvent” and Mr Bolton responded:
“not unless we can raise capital, however the hearing scheduled for 10 February 2025 to resolve the capital raise restriction has now been moved back, with a decision unlikely before mid-March 2025.”
“[Mr Bolton] asked [Mr Catalano] what he wants to do at the shareholder meeting. [Mr Catalano] said he doesn’t know and doesn’t want to be pressed on it.”
“I have been reflecting over some time about Keybridge and its challenges. I have lost confidence in Nick Bolton and the other directors. I know WAM and I haven’t seen eye to eye on some issues but I cannot in good conscience support Bolton on Monday and so I will be voting in favour of the WAM resolutions. I intend to do so immediately after sending this text. I have no desire to remain a director of Keybridge indefinitely but I do feel I have an obligation to shareholders (and also to preserve value in my own shareholding) to help get the company back on track. I think it will be difficult for the incoming directors to clean up the company without the benefit of all the corporate history. I would like you to consider supporting my re-election on this basis. Either way – I will be voting as described as I feel that is in the best interests of all shareholders.”
“Are you able to inform me of the status of proxies and whether the resolution/s are likely to pass as this may affect the validity of any directors’ resolution to appoint an administrator if the board is materially changed.”
“Historically WAM have not been able to succeed at a shareholders’ meeting and we have no evidence to suggest they will in this one.”
Around half an hour after this email, the Board meeting resumed at 7.12pm on 6 February 2025. The minutes record that, immediately upon the meeting’s resumption, Mr Catalano “stated that he had contacted Mr Wilson today at 6.00pm to advise that he is voting the same way as WAM and that he had asked [WAM] to support his re-election”.
There was further discussion regarding the solvency of Keybridge. Mr Patton informed the Board that advice was being sought from Mr Broadfoot. The minutes recorded that: “Directors AGREED to wait for the legal advice”. The meeting then closed at 8.30pm.
At around 8.44pm on 6 February 2025, WAM and its associated entities lodged their proxy votes for the Section 249F Meeting, voting in favour of all resolutions other than the resolution to remove Mr Catalano.
Mr Bolton became aware of WAM’s votes later that evening, texting Mr Patton at midnight that: “WAM voted for CAT”. Mr Bolton added the “face with tears of joy” emoji, indicating that he found this turn of events amusing.
On 7 February 2025 at 5.47am, Mr Rathner sent an email to Mr Bolton stating as follows:
“I have reviewed the proxy summary report and it appears to me that based upon the proxies received the vote to replace the directors will succeed. I suggest that you request Counsel to also advise you whether it would be appropriate for the directors to pass a resolution [appointing a voluntary administrator] knowing they may be removed.”
“Prior to me providing my consent to act, I will require funding of $1,000,000 to be provided and paid into my trust account together with a trust account authority. The authority will include that I can draw on the funds to cover my time costs, expenses including legal fees at a solicitor/client rate and any costs incurred in the administration of Keybridge … whether or not my appointment is valid.”
“Based on these factors, it seems to me that the directors could form a bona fide opinion that Keybridge is insolvent or likely to become insolvent at some future time, in order to appoint an administrator in the manner contemplated by s 436A of the Corporations Act.”
Mr Broadfoot emphasised that the opinion as to solvency or likely future insolvency is an opinion for the directors to form and stated that, if the directors did form the opinion that Keybridge was insolvent or likely to become insolvent, “then my advice is that a proper and prudent course of action for them to follow, would be to appoint an administrator”.
However, Mr Broadfoot added that it would not be a proper exercise of the power under s 436A “if the directors of Keybridge were to appoint an administrator in order to thwart the passing of any resolutions at the [Section 249F Meeting]”.
“a. The Company’s dispute with Mr Catalano regarding the ownership of ACM and the total value of the 16.67% in ACM being worth around $22.5 million which compares with the Company’s current carrying value of nil, as a direct consequence of the dispute with Mr Catalano
b. The Keybridge directors did not agree that ACM belonged to Mr Catalano and required a proper process to be undertaken to determine ownership, and on 6 February 2025, consistent with threats dating back to May 2024, Mr Catalano advised that he had changed his support to WAM and would be voting against the Keybridge directors.
c. WAM voted against their own stated voting preferences, as set out in their Notice of Meeting and Explanatory Memorandum, in support of Mr Catalano’s re-election.”
“I asked Mr Broadfoot for his thoughts if I were to raise these matters and concerns at the s 249F meeting on 10 February 2025 and then adjourn the meeting so that shareholders could be properly informed. Counsel advised that no identifiable prejudice flows from an adjournment so that shareholders can be properly informed. Based on this advice, I considered the lesser prejudice for members as a whole materially favoured an adjournment.”
In cross-examination, Mr Patton accepted that, by 7 February 2025, he had formed the view that if he chaired the Section 249F Meeting, he would adjourn it.
There is nothing in the brief provided to Mr Broadfoot, or in his advice, or in the Defendants’ affidavits, to indicate that Mr Broadfoot was told that as at 7 February 2025, Mr Patton and Mr Bolton were aware, as a matter of fact, that by reason of Mr Catalano supporting WAM’s resolutions to remove the Incumbent Directors (other than himself) and to appoint the Proposed Directors, those resolutions would succeed if they were put to the Section 249F Meeting.
Mr Patton set out in his affidavit the background to the dispute regarding “the ownership of ACM”, which had been referred to in his discussion with Mr Broadfoot regarding postponement of the meeting.
Mr Patton explained that, since March 2024, there had been a dispute regarding who owned a 16.67% interest in Australian Community Media (ACM), with Mr Catalano asserting that he owned this stake and Mr Bolton asserting that Keybridge was the owner. The interest was held by a corporate trustee which was wholly owned by Mr Catalano. In May 2024, Mr Catalano had asked Mr Patton, as Chairman of Keybridge, to take steps to resolve this issue and advice had been obtained which had indicated that Keybridge was the owner of the interest. Mr Patton gave evidence that this 16.67% interest in ACM was worth around $22.5m.
In each of its Monthly Net Asset Backing Reports since March 2024, Keybridge had made the following disclosure to the ASX:
“… Keybridge currently holds an investment at nil that could, alternatively, be carried at an equity accounted value of approximately $7.35 million, which equates to approximately 3.5 cents per Keybridge share. There is presently a dispute with the trustee in relation to this investment which Keybridge is working through with the trustee and further details will be provided in due course”.
On the afternoon of 7 February 2025, WAM served an interlocutory process in the Capital Raising Restraint Proceeding, seeking orders for the appointment of an observer for the Section 249F Meeting and an injunction restraining Keybridge from postponing, cancelling or adjourning the meeting.
On the same day at 3.00pm, there was a directions hearing before me in the Capital Raising Restraint Proceeding. Keybridge’s counsel indicated that there would be agreement to the appointment of an observer at the Section 249F Meeting. The application for an injunction to restrain Keybridge from postponing, cancelling or adjourning the meeting was listed on Monday, 10 February 2025 at 9:15am.
On Sunday, 9 February 2025 at 11.02am, Yowie issued a letter of default to Keybridge in respect of Keybridge’s failure to repay the outstanding principal of the Yowie loan by 5.00pm on 7 February 2025, as required by its letter of demand dated 6 February 2025.
Mr Bolton replied by email shortly afterwards, describing the issue of the letter as “unfortunate”, indicating that Keybridge was “currently working through its liquidity”, and discouraging Yowie “from taking further steps until we have a reasonable opportunity to respond”.
At 11.30am, Mr Patton convened a meeting of the Board for 5.00pm that day and circulated a bundle of documents including the brief to Mr Broadfoot, Mr Broadfoot’s advice on solvency, the correspondence from Yowie, a summary of aged payables and aged receivables, information on Keybridge’s assets and investments, and a cash flow forecast.
On the afternoon of 9 February 2025, Mr Bolton and Mr Rathner exchanged text messages regarding Mr Rathner’s potential appointment as voluntary administrator of Keybridge. Mr Bolton asked if Mr Rathner was “okay on conflicts etc” and Mr Rathner responded as follows: “I just need the funding confirmation and I can send my consent”.
Yowie resolved later that day to provide $150,000 in funding to the administrator of Keybridge.
At the Board meeting on 9 February 2025, the directors of Keybridge considered the financial position of Keybridge. The minutes record that the Board considered Keybridge to be “Insolvent and wealthy”, with “insufficient cash or liquid resources to pay its debts”, and concluded that Keybridge failed the solvency test in s 95A of the Act. The injunction restraining Keybridge from putting Resolution 7 (which was described as having the effect of “preventing the Company from raising capital”) was said to have “result[ed] in the flow on effect of the offer of a debt facility being withdrawn” (namely the Roadnight bridging facility), and these were identified as “significant events impacting the solvency of the Company”. The directors unanimously resolved that Keybridge was insolvent or was likely to become insolvent. The minutes of the meeting record that:
“The Board also considered the upcoming s.249F meeting, however noted that the Company’s solvency and the directors’ duties takes precedence over external events, so this was not a consideration by the Board.”
The minutes record that Mr Patton identified nine “parties considered for the role of Voluntary Administrator”. The first six names on the list were described by Mr Patton as being “too big and too expensive (by a factor of 3-4 times)”. Two other names on the list were “not independent” as they were, respectively, the current auditor and the proposed auditor. That left one candidate (Mr Rathner).
The directors unanimously resolved to appoint Mr Rathner as voluntary administrator, effective immediately.
The minutes recorded that: “The Administrator will likely deal with the s.249F meeting scheduled tomorrow.”
Later on the evening of 9 February 2025, Mr Rathner received $118,000 in his trust account from Yowie to fund the administration, and provided his consent to act as voluntary administrator.
“I think you’ll still need to chair the meeting. The administrator can advise you what they want to occur, but the function of the meeting is still run by the company’s Chair.”
“If you consider that the market needs to be informed about these matters, before release of an announcement, we will also need to be provided with a factual basis for [Keybridge’s] views and an understanding of the respect in which shareholders are not ‘properly informed’.”
Shortly after 9.00am on 10 February 2025, Keybridge announced to the ASX that it had received the letter of default from Yowie and that it had entered into administration.
At 9:15am, the Capital Raising Restraint Proceeding was before Black J. His Honour was informed that Mr Rathner had been appointed as voluntary administrator. The matter was adjourned to 11 February 2025 before me.
At 11.38am, Mr Patton sent Mr Bolton a photograph of a document entitled “Chairman’s Running Sheet” which had been prepared for the Section 249F Meeting. This was, in effect, a draft script for Mr Patton to use at the Section 249F Meeting. There was another version of this script which includes Mr Patton’s handwritten amendments. The statements made by Mr Patton at the Section 249F Meeting, as recorded in the minutes which he prepared, closely followed his amended script. The script included statements by Mr Patton that the meeting was opened and that he “had a number of concerns about this meeting” (which were set out), and concluded with a statement that Mr Patton was exercising his powers as Chairman to adjourn the meeting “until a later date, with details of the new date to be provided in due course”.
Mr Rathner provided a written consent for Mr Patton to chair the Section 249F Meeting. Around an hour before the Section 249F Meeting, Mr Patton informed Mr Rathner that he planned to adjourn the meeting. Mr Rathner did not request any such adjournment or express the view that any such adjournment was necessary or endorse the proposed course, stating in cross-examination that: “I had no view in relation to what he was going to do at the meeting other than to ensure any reference to me was properly presented.”
Mr Rathner confirmed that, although he attended the Section 249F Meeting, he took no active part in it and did not express any views in relation to the business before the meeting or its adjournment:
“Q. You attended the meeting but you took no part in it or made no contribution to it, is that right?
A. That is correct.
Q. May we take it from that you didn't tell the meeting that you would be assisted, as administrator, by the meeting being adjourned?
A. I did not.
Q. You didn't tell anyone at the meeting that you might not implement the will of the shareholders as to the appointment of directors, is that correct?
A. I didn't, I did not.”
WAM’s solicitor, Ms Reid, attended the Section 249F Meeting and took detailed minutes of that meeting. Mr Patton also produced minutes of the meeting.
There were two main differences between these sets of minutes.
First, Mr Patton’s record of events concludes at the time that he announced that the meeting had been adjourned, whereas Ms Reid’s note records the events which followed that announcement, including Mr Hamilton nominating himself as chairperson and putting to a vote the resolutions to remove the Incumbent Directors and to appoint the Proposed Directors.
Secondly, Mr Patton’s minutes included, at the end, a section headed “Chairman’s Statement”. Mr Patton acknowledged that this section did not represent matters said at the meeting, but instead his comments on various issues which he recorded after the meeting.
Otherwise, insofar as both sets of minutes covered the events leading up to Mr Patton’s statement that the meeting was adjourned, there was only one substantive point of difference which was highlighted in cross-examination of those present, and in submissions, namely, whether Mr Patton indicated that the date of the adjourned meeting would be announced via the ASX (this issue is addressed below).
At the commencement of the Section 249F Meeting, Mr Patton stated that he had received authority from Mr Rathner to chair the meeting, confirmed that a quorum was present, and declared the meeting to be open.
Mr Patton then gave an address to the meeting. According to Mr Patton’s minutes of the meeting, he referred to the fact that Keybridge had been placed into voluntary administration on the previous day, and made the following statement:
“I have raised my concerns with the Administrator, Mr Gideon Rathner, about this meeting including, but not limited to, the following:
• The Company has been trying to raise capital since October 2024, with the proceeds to have been applied to meet (i) the extraordinary unbudgeted legal costs associated with the Court actions brought against the Company by WAM Active Limited (WAM), (ii) debt reduction, and (iii) working capital. The Company also had an offer of debt finance, dependent on a capital raise occurring.
• Keybridge notes the significant impact on its business following WAM’s persistent attempts to thwart the Company from raising capital. The most recent injunctive relief obtained by WAM on 31 January 2025 prevents shareholders from approving a capital raising (which includes share applications and subscription monies received [from] WAM), until the matter can be finally heard. The final hearing date had been set down for today, being 10 February 2025, however on 5 February 2025 this date was vacated by the Court, so the matter is now not likely to be determined until mid-March 2025.
• Consequently, the Company has been prevented from raising capital and the conditional offer of debt finance was withdrawn.
• On 6 February 2025, Yowie Group Ltd (via an independent sub-committee) formally demanded the repayment of (i) interest outstanding, under the Reciprocal Loan Facility (Loan) executed on 23 May 2024, of $80,035.12 and (ii) the Loan principal of A$4,483,345, pursuant to clause 4.1 of the Loan, with repayment to be made by 5pm on 7 February 2025. This has not been paid.
• In each of its Monthly NTA Statements issued since March 2024, the Company has made mention of a dispute with the trustee in relation to an investment held by the Company which is currently carried at nil value. It is material. The Administrator has been made aware of the dispute and it will form part of his investigation.
• On 6 February 2025, WAM voted against their own resolution, and voting recommendation, in support of Mr Catalano.
• Keybridge has concerns that Shareholders are not currently properly informed about the matters pertaining to the Company that are relevant for this meeting.
• Mr Rathner was appointed as the Administrator yesterday and will be considering the Administration process.
• Similarly, director nominees may need time to consider whether to withdraw their consents to act as a director, now that the Company is in Administration.
Consequently, consistent with my powers as Chairman under the Company’s Constitution (rule 7.6), it is my decision (on prior notice to the Administrator) that this meeting be adjourned until a later date, with details of the new date and time to be provided in due course (by announcement to ASX).”
“Consistent with my powers as chairman under rule 7.6 of the Constitution, it is my decision that the meeting now be adjourned.
…
I adjourn it to a later date that will be notified in due course.”
The main substantive difference between this statement in the two versions of the minutes is that Ms Reid’s minutes do not include the material set out in the parentheses in Mr Patton’s minutes. Each of Mr Reid and Mr Hamilton confirmed in cross-examination that they could not recall Mr Patton adding the words “by announcement to ASX”.
It is unlikely that those additional words were said. The words “by announcement to ASX” do not appear in the script which Mr Patton prepared for use at the Section 249F Meeting, either in the version sent to Mr Bolton or in the version with Mr Patton’s handwritten amendments. Each of those versions of the script instead contains a statement, consistent with Ms Reid’s minutes, that it was Mr Patton’s decision to adjourn the meeting “until a later date, with details of the new date to be provided in due course”. Further, Mr Patton appears to have used parentheses to record matters which he did not state at the time, but which he has later added by way of comment when preparing the minutes. An example is as follows:
“Mr Hamilton stated that JP couldn’t adjourn the meeting without nominating a time and date for the resumption of the meeting. JP replied that the Company constitution doesn’t require this and that the Company will inform shareholders of the date of the resumed meeting shortly (which was promptly done via an ASX Announcement).”
The material in parentheses, which refers to an event after the meeting, plainly does not refer to anything said at the meeting.
The minutes record that, in response to Mr Patton’s statement that the director nominees needed more time to consider their position, Mr Ravell pointed out that three of the four Proposed Directors were present at the Section 249F Meeting (namely, Mr Ravell, Mr Hamilton and Mr McCathie) and that none had withdrawn his consent to act.
Ms Reid’s note records that Mr Hamilton of WAM stated that:
“This is a meeting we called to replace the directors. It has nothing to do with the other things you just described. This is not a proper basis to adjourn the meeting.”
Mr Patton’s minutes record that the meeting was “very disorderly and unruly” and that this provided a further reason to adjourn the meeting. However, at the hearing before me, no submissions were advanced to the effect that any such “unruliness” provided an independent basis for the adjournment (and, as noted above, the decision to adjourn was made in advance of the meeting).
Ms Reid’s minute of the meeting records that, after Mr Patton stated that the meeting was adjourned, he rose from the table at the front of the room, closed the telephone line and walked towards the door. Mr Hamilton then walked up and took a seat in front of the meeting.
Mr Hamilton stated that: “If Keybridge’s outgoing directors are unwilling or unable to continue the Meeting, the shareholders will elect one of their number to act as Chairman.” Mr Hamilton indicated that he was willing to act as chairperson and Mr Ravell seconded his appointment. Mr Ravell then called Mr Catalano’s phone number, with Mr Catalano participating in the events which followed by that means. Mr Hamilton then read out each of the resolutions in the Section 249F Notice to the meeting. Throughout these events, Mr Bolton and Mr Patton remaining in the meeting room.
A representative of Boardroom, the independent observer who had been appointed to the Section 249F Meeting, recorded the voting of shareholders. According to the poll report, each of the resolutions to remove the Incumbent Directors was passed (other than the resolution to remove Mr Catalano), and each of the resolutions to appoint the Proposed Directors was passed. Approximately 58.08% of shareholders voted in favour of the resolutions that passed, and 41.92% against, with none abstaining.
“The Chair outlined a number of concerns to shareholders. In accordance with rule 7.6(f)(1) of the Company’s constitution and prior to any business of the meeting being conducted, the Chair adjourned the meeting at 4.55pm until a later date, with details of the new time and date to be provided to the exchange pursuant to Rule 7.6(i) of the Constitution.
To enable the orderly progression of the Administration, notice is given that the adjourned meeting will be reconvened on 22 April 2025 at 4.30pm at the same location, being the rooftop conference room on level 7, 370 St Kilda Road, Melbourne Vic 3004. This date is 31 days after the estimated conclusion of the Administration (subject to any extension) and pursuant to rule 7.6(k) of the Constitution, an additional Notice of Meeting will be issued in due course.”
It is generally accepted that a chairperson has no inherent power to adjourn a meeting in the absence of the consent of the majority of those present: Commonwealth Bank of Australia v Fernandez [2010] FCA 1487 at [27] (Finkelstein J). That is subject to a limited number of exceptions, such as where the chair cannot maintain order or where the meeting place is not large enough to accommodate all those wishing to attend or where a poll has been demanded and it is necessary to adjourn the meeting to enable the poll to be taken: ibid. None of those exceptions was applicable here.
In the present case, Mr Patton did not seek, or obtain, the consent of the majority of those present to an adjournment.
The general power of directors, under a corporate constitution, to manage the company and to exercise its powers does not allow the directors to postpone a duly convened general meeting. For the directors to be able to do that, there must be some express power given to them by the constitution: McKerlie v Drillsearch Energy Ltd [2009] NSWSC 488 at [13] (Barrett J), referring to Smith v Paringa Mines Ltd [1906] 2 Ch 193.
The issue therefore arises as to whether Mr Patton as chairperson adjourned the Section 249F Meeting pursuant to some express power in the Constitution permitting him to do so.
Mr Patton told the Section 249F Meeting that he was adjourning the meeting using his “powers as chairman under rule 7.6 of the Constitution”. Keybridge’s announcement to the ASX on the following day stated that the meeting had been adjourned “[i]n accordance with rule 7.6(f)(1) of the Company’s constitution”. In written and oral submissions, Mr Patton, Mr Bolton and Mr Dukes (the Director Defendants) relied only on rule 7.6(f)(1) in contending that the adjournment was within power.
Rule 7.6(f)(1) of the Constitution provides as follows:
“(f) The chairperson may at any time during the course of the meeting:
(1) adjourn the meeting or any business, motion, question or resolution being considered or remaining to be considered by the meeting either to a later time at the same meeting or to an adjourned meeting; …”
Mr Patton did not adjourn the meeting “to a later time at the same meeting”. Instead, he stated that that he was exercising his power under rule 7.6 by “adjourning to a later date”, with the new date to be provided “in due course”. The issue is whether this amounts to a valid exercise of the power to “adjourn the meeting … to an adjourned meeting”.
WAM submitted that, in order for there to be a valid adjournment under rule 7.6(f)(1), there needed to be “an adjourned meeting” to which the Section 249F Meeting or the business at that meeting was being “adjourned”. WAM argued that an adjournment “to a later date” which was to be provided “in due course” did not involve the adjournment of the Section 249F Meeting “to an adjourned meeting”, but an adjournment sine die, which was not a valid exercise of the power under rule 7.6(f)(1) and was therefore of no effect.
In response, the Director Defendants contended that it was not necessary, in order for rule 7.6(f)(1) to be validly exercised, “to specify any particular date or time at the meeting that is adjourned”, and that it was sufficient to state, as here, to undertake to provide shareholders with details of the adjourned meeting in due course.
In St George Bank Ltd v Rangers Club of NSW Inc (1995) 18 ACSR 370 at 379-380 (affirmed on appeal in Young v Cotter [1996] NSWCA 573), Santow J concluded that a power to adjourn “from time to time” permitted “not only an adjournment for a specified time … but also allows an adjournment ‘at any time’ or, in other words, sine die”.
In contrast, in Onefone Australia v One.Tel [2010] NSWSC 401 at [24], Barrett J held that a power to adjourn “from time to time” required determination of the time and place at which the adjourned meeting would resume. His Honour observed that: “A valid decision to adjourn involves determination and communication of the time and place at which the adjourned meeting will resume, in the sense that the members of the body will come together again ‘to conclude such business as they had already begun’, to use the words of Le Blanc J in R v Mayor Burgesses and Commonalty of Carmarthen (1813) 1 M&S 697 ; 105 ER 260.” His Honour said that, in contrast, a “decision to adjourn sine die is a decision to terminate”.
In Investa Listed Funds Management Ltd [2018] NSWSC 1391 at [17] Black J held that a power to adjourn a meeting to “any time and place” included a power to adjourn sine die; and a similar conclusion was reached by Brereton J in Re Re1 and Re2 (No 3) [2014] NSWSC 762 at [8], [11], in respect of a power to adjourn to “such place and time as the chair thinks fit”.
“The range of surrounding circumstances available as aids to the construction of such a contract is perhaps more limited than in other cases. This is because constitutions, and replaceable rules, can be amended at different times and in different circumstances. In addition, the members who are the corporators at particular times may change. These factors suggest that ordinarily primacy must be given to the objective intention discernable from the language in which the constitution is expressed rather than to other features of the surrounding matrix of fact in which its provisions may have been made.”
The Director Defendants submitted that the language of rule 7.6(f), which dealt with the power to adjourn a meeting, was to be contrasted with the language of rule 7.6(e), which dealt with the power to postpone a meeting.
Rule 7.6(e) required that a “postponement … will be to another time … and may be to another place”, thereby requiring that a new time must be specified in order for a valid “postponement” to occur. In contrast, rule 7.6(f) gave the chair a power to adjourn the meeting “either to a later time at the same meeting or to an adjourned meeting”.
The Director Defendants submitted that this power needed to be read in conjunction with rules 7.6(i)-(k), which provide as follows:
“(i) Where a meeting is postponed or adjourned under this rule 7.6, notice of the postponed or adjourned meeting must be given to the Exchange, but except as provided by rule 7.6(k), need not be given to any other person.
(j) Where a meeting is postponed or adjourned, the directors may, by notice to the Exchange, postpone, cancel or change the place of the postponed or adjourned meeting.
(k) Where a meeting is postponed or adjourned for 30 days or more, notice of the postponed or adjourned meeting must be given as in the case of the original meeting.”
The Director Defendants submitted that rule 7.6(f) required only that there be an “adjourned meeting” and rules 7.6(i)-(k) provided for the details of the adjourned meeting to be notified by way of an ASX announcement (if adjourned for less than 30 days) or by way of both an ASX announcement and a notice to members (if adjourned for 30 days or more).
However, as WAM observed, rules 7.6(i) and (k), which require that notice of the adjourned meeting need not be given to anybody other than the ASX (unless the adjournment is for more than 30 days), operate more coherently in circumstances where rule 7.6(f) requires that, at the time of any adjournment pursuant to that rule, the time of the “adjourned meeting” be specified. If rule 7.6(f) permitted an adjournment sine die, shareholders might be put in a position where they were not told at the meeting when the meeting would resume and did not know either whether they would be sent notice of any adjourned meeting or when the date of any adjourned meeting would be announced to the ASX.
The Director Defendants sought to address those difficulties by contending that Mr Patton informed the meeting that a new date and time would be provided by way of ASX notice and thereby “in effect, committed to the announcement of details for the adjourned meeting (through the ASX) within 30 days”.
However, I have found that it is unlikely that Mr Patton made any statement to the meeting to the effect that the date for the adjourned meeting would be announced via the ASX. Accordingly, at the time of the purported adjournment of the Section 249F Meeting, members were left uninformed about when the meeting would resume, when such a decision on the date for any such resumption would be made, and when or how such a decision would be announced.
Mr Patton indicated in cross-examination that he himself did not know whose decision it would be as to when the meeting would occur. He stated that he “was in unfamiliar territory” because he was “given a consent to chair a meeting where [his] powers as a director are suspended”, and the consent was “for this day for this meeting”, and he “didn’t know whether [he] had power to do something that went into a different time period”.
Mr Patton did not adjourn the Section 249F Meeting “to a later time at the same meeting”. Nor did he adjourn it “to an adjourned meeting”, since there was no time or date nominated for the members to come together to resume the Section 249F Meeting. Instead, he merely indicated the meeting was “adjourned” and that the details for resumption of the meeting would be provided “in due course”.
Having regard to those matters, I have concluded that Mr Patton’s purported adjournment of the Section 249F Meeting sine die was beyond the power conferred by rule 7.6(f)(1) of the Constitution and was, in substance, a termination of the meeting: at [24]. It was therefore invalid and of no effect.
Further or alternatively, WAM contended that Mr Patton’s purported adjournment of the Section 249F Meeting was not in good faith for a proper purpose.
The relevant principles were not in dispute. In McKerlie v Drillsearch Energy Ltd (2009) 74 NSWLR 673; [2009] NSWSC 488, Barrett J held that a chair’s power to adjourn a meeting must be exercised in good faith for a proper purpose. His Honour observed (at [29]) that the power is constrained by the notion of a fraud on the power as explained by Bryson J in Lancedale Holdings Pty Ltd v Health Group Australia Pty Ltd [1999] NSWSC 609 at [71]:
“It is very common to find that the manner of exercise of powers is limited by requiring that they be exercised in good faith and for the purposes for which they were conferred; sometimes this is a limitation imposed in Equity on the conduct of trustees or other persons with fiduciary responsibilities who deal with rights which exist only in Equity; and sometimes a control of that kind is implied in the terms of the instrument creating the power. Similar implications are usual for powers in public law.”
In Drillsearch at [32], Barrett J referred to the decision of the English Court of Appeal in Byng v London Life Association Ltd [1990] Ch 170, which concerned the residual common law power of a chairman to adjourn a meeting. The Court held that the chairman may act unilaterally if circumstances are such that the wish of the meeting itself cannot be ascertained. However, Sir Nicholas Browne-Wilkinson V-C observed (at 188) that the power of the chairman to act unilaterally is “tightly circumscribed by reference to the objects for which it exists”, namely, “to facilitate the presence of those entitled to debate and vote on a resolution at a meeting where such debate and voting is possible”. His Lordship said (at 189) that it is not correct that a chairman’s decision can only be impugned for lack of good faith: “In my judgment the chairman’s decision must also be taken reasonably with a view to facilitating the purpose for which the power exists.”
In Drillsearch at [38], Barrett J observed that “it is foreign to the chairman’s function to exercise the power of adjournment to further some personal preference of the chairman or some policy of a body of which the chairman is a member”; and therefore, it is “foreign to the chairman’s function, when the chairman is a director, to exercise the chairman’s powers to implement some policy or decision of the board of directors”. His Honour continued as follows (at [39], emphasis added):
“This is particularly so in a context such as the present where the purpose of the general meeting is to determine the constitution of the board itself. The right of the general body of members to remove directors by resolution is a statutory right which may or may not have some parallel in the constitution. If, by ordinary corporate processes, a forum is created to enable members to exercise that right if minded to do so, it will be an abuse of the power of a chairman to remove the opportunity to exercise the right except for some good and proper reason calculated to promote the due exercise of the right in more suitable or constructive circumstances at a later time. It will be a clear abuse of power if the chairman removes or postpones the right simply because he or she (alone or in consultation with others) thinks that it would somehow be more conducive to the interests of the company if members were not allowed to exercise the right to remove directors.”
In the present case, WAM had, pursuant to s 203D(2) of the Act, given two months’ notice of its intention to move a resolution for the removal of the Incumbent Directors. Section 203D(1)(a) provides that the director of a public company may be removed from office by resolution despite anything in the company’s constitution. Further, WAM had, pursuant to s 249F of the Act, exercised its right, as a member holding more than 5% of the votes that may be cast at general meeting, to call and arrange to hold a general meeting, in order to consider resolutions for the removal of the Incumbent Directors.
The Section 249F Meeting was a forum, created by ordinary corporate processes, for the purposes of enabling the members of Keybridge, if minded to do so, to exercise the right to remove the Incumbent Directors by resolution. Accordingly, it would be an abuse of power for Mr Patton to remove the opportunity to exercise that right “except for some good and proper reason calculated to promote the due exercise of the right in more suitable or constructive circumstances at a later time” (Drillsearch at [39], quoted above). In Central Exchange Ltd v Rivkin Financial Services Ltd [2004] FCA 1546 at [33], Emmett J observed that: “the circumstances in which it will be proper for the Board to postpone … a meeting called pursuant to s 249F, or to cancel such a meeting, will be limited and such powers must, of necessity, be exercised extremely sparingly so as not to frustrate the right conferred by s 249F”. Those comments have equal application to the exercise of a power to adjourn a meeting (particularly where a purported adjournment is sine die).
The written submissions of the Director Defendants focused principally on the fact that Keybridge had entered into voluntary administration on the previous day. They submitted that, in adjourning the Section 249F Meeting, Mr Patton “was entitled to act as he did in the interests of all shareholders, none of whom suffer any identifiable prejudice by reason of them having the benefit of time to consider the ramifications of the administration pending the resumption of the meeting”. It was submitted that, in those circumstances, it was “a reasonable and proper course of action” for Mr Patton to adjourn the Section 249F Meeting, otherwise “votes could be cast (or, via proxy, had been determined in advance to be cast) in the absence of information concerning the appointment of the voluntary administrator and solvency of the company”.
In Cadwallader v Bajco Pty Ltd [2001] NSWSC 1193 at [111], Austin J observed that:
“I see no reason of principle for holding that a properly requisitioned meeting of members to replace the board of a company should be abandoned if the incumbent board appoints an administrator after the meeting has been convened but before it has been held. Indeed, one can imagine circumstances where the policy underlying Part 5.3A would not be served unless the meeting could take place - for example, where the incumbent board has become unco-operative or the majority directors are driven by an unacceptable conflict of interest. My conclusion, therefore, is that if a meeting to consider motions to replace the directors has been validly convened before an administrator is appointed, the intervening administration does not require that the meeting be abandoned or adjourned.”
In his conversation with Mr Broadfoot on 7 February 2025, Mr Patton did not identify the prospective appointment of Mr Rathner as voluntary administrator as one of the “material matters” regarding the proposed resolutions, which led Mr Patton to conclude that he should “adjourn the meeting so that shareholders could be properly informed” (see paragraph [98] above).
There is no record in Mr Patton’s or Ms Reid’s minutes of the Section 249F Meeting of Mr Patton expressing the view that ,in light of Mr Rathner’s appointment, shareholders needed more time to consider the resolutions to remove the Incumbent Directors and to appoint the Proposed Directors. Nor is there any record of any shareholder indicating, at the meeting or prior to the meeting, that they would be assisted by the meeting being adjourned so that they could consider the implications of Mr Rathner’s appointment for the proposed resolutions to change the composition of the Board.
Mr Patton stated in cross-examination that he did not even consider putting to shareholders the question whether the meeting should be adjourned:
“Q. At the meeting, after you opened the meeting, you didn't put the question of an adjournment to a vote by the shareholders?
A. No, I didn't.
Q. You knew that if you did put it to a vote, a majority of the shareholders would vote against the adjournment?
A. Well, there was issues with the, with the - I had, I had concerns over the way in which parties were voting.
Q. You knew that if you put it to a vote, a majority of the shareholders present and entitled to vote would vote against the adjournment, didn't you?
A. I - it's not something I even thought of putting to the meeting.
Q. You didn't even think about putting it to the meeting?
A. No, I didn't.”
WAM and its associated entities held a 43.52% voting interest in Keybridge, and Mr Catalano and his associated entities held a 10.36% voting interest in Keybridge. Mr Patton was aware that if WAM and Mr Catalano supported the resolutions to remove and replace directors, those resolutions would necessarily pass at the Section 249F Meeting. Mr Patton was also aware that neither WAM or Mr Catalano had indicated that they required further time to consider their position on the resolutions by reason of the appointment of Mr Rathner as voluntary administrator; and instead, each objected to the adjournment of the Section 249F Meeting (WAM doing so through its representative Mr Hamilton) and supported the meeting continuing, with the resolutions being put to a vote. There was no reason for Mr Patton to consider that an adjournment was necessary in order to promote the due exercise of the right of the majority of shareholders to replace any or all of the Incumbent Directors and to appoint the Proposed Directors.
According to Mr Patton’s and Ms Reid’s minutes of the Section 249F Meeting, Mr Patton, when referring to the recent appointment of Mr Rathner, expressed the view that each of Mr Rathner and the Proposed Directors might require more time to consider their position.
Mr Patton’s minutes record that he made the following statements:
• “Mr Rathner was appointed as the Administrator yesterday and will be considering the Administration process.
• Similarly, director nominees may need time to consider whether to withdraw their consents to act as a director, now that the Company is in Administration.”
“The voluntary administrator … requires more time to consider the administration and similarly with the Company being placed into administration yesterday, director nominees need to consider whether they want to withdraw their consent to act.”
However, as Mr Patton knew, Mr Rathner had not requested that the Section 249F Meeting be adjourned or expressed any view that he would be assisted by an adjournment while he was “considering the Administration process”.
Similarly, Mr Patton was aware that none of the Proposed Directors had indicated that they needed time to consider whether to withdraw their consents to act as a director, now that Keybridge was in administration. Three of the four Proposed Directors were present at the meeting (Mr Hamilton, Mr Ravell and Mr McCathie), and each of them objected to an adjournment and wanted the resolutions for their appointment to be put to a vote at the Section 249F Meeting.
Mr Patton’s minutes of the Section 249F Meeting include the following commentary regarding the position of the director nominees:
“Mr Ravell stated that the nominees present in the meeting had not withdrawn their consent to act as directors, however there was no internal discussion between the WAM parties, and Mr Wilson was not present at the meeting. It was not clear if Mr Ravell had authority to speak for Mr Hamilton and Mr McCathie, however it was clear that he was not speaking for Mr Wilson who was not present.”
“… I, I, I thought that the administration, the fact that the company was in administration would be - would be something that the incoming directors ought to have some time to consider. I don't know. I put myself in their shoes, and if I was part of a - an action where I had been nominated as a director to a company under a 249F and it was in administration because it was insolvent, I think I would want some time to withdraw my nomination, because I don't know if I would want to go through with that.
Q. None of the incoming directors sought more time, did they?
A. Not all the directors--
Q. None of the incoming directors sought more time, did they?
A. They didn’t, but--
Q. You don’t honestly believe that any of the incoming directors sought more time, do you?
A. I, I think that - I, I think it would be - I, I, I, I, I don't think they appreciated the financial position of the company, with all due respect.”
I do not accept that Mr Patton genuinely held any such concern that a Proposed Director (such as Mr Wilson, who was not present) would need more time to reconsider his position in light of the recent announcement that Keybridge was insolvent and that Mr Rathner had been appointed as voluntary administrator. Mr Patton knew that Mr Wilson and Mr Hamilton had given evidence in the Winding Up Proceeding in support of WAM’s claim that a liquidator should be appointed to Keybridge on the grounds of insolvency. In particular, WAM had contended, in November 2024, that Keybridge was asset rich, but cash poor, and did not have sufficient liquid assets to pay its debts as and when they fell due, being the same view that the directors of Keybridge had reached in early February 2025. As noted above, matters which were material to the finding in the Winding Up Proceeding regarding the solvency of Keybridge were the Yowie loan, the availability of bridging finance from Roadnight, and Keybridge’s ability, as at November 2024, to raise capital on a pro rata basis. In late January 2025, Keybridge had disclosed in the January Court Hearing that the Roadnight bridging facility was no longer available and that Yowie would “shortly require [its] loans to be repaid” (see paragraph [52] above), and an injunction had been granted restraining Keybridge from raising capital by Resolution 7. Those were all matters known to WAM and likely known to the Proposed Directors. Nonetheless, each of those persons provided a written consent to be a director of Keybridge shortly before the Section 249F Meeting (on 6 February 2025 in the case of Mr Ravell, and on 7 February 2025 in the case of Mr Hamilton, Mr McCathie and Mr Wilson).
Further the discussion at the Board meeting on 5 February 2025 does not suggest that any of the Incumbent Directors (including Mr Patton) thought it would be a surprise to Mr Wilson to learn that the company was insolvent or that it would cause Mr Wilson to reconsider his aim of being appointed as a director:
“[Mr Catalano] asked [Mr Bolton] what he thought Geoff Wilson would do if he got onto the Board. [Mr Bolton] thought if Mr Wilson could get into the Company, he would appoint a voluntary administrator on day 1 as the company is insolvent.”
At the same Board meeting, Mr Patton stated that “WAM thought they would win in November”, that is, that WAM (and Mr Wilson) considered that the Company would be shown to be insolvent. In cross-examination, Mr Patton indicated that, in February 2025, he did not think it worthwhile discussing with WAM “the terms on which WAM might be willing to provide accommodation to address solvency”, because “WAM has been trying to wind us up as an insolvent company since February last year”. He added that, if he had told WAM (and presumably Mr Wilson) that “we’ve got solvency problems”, the response would be along the following lines; “They’re going to go, of course you’ve got it [a solvency problem], we’ve been saying it since February last year”.
Those matters are inconsistent with Mr Patton having any genuine belief or concern that, as at 10 February 2025, Mr Wilson might have wanted more time to consider whether to withdraw the consent to act as a director which he had given on 7 February 2025, by reason that in the intervening period the directors of Keybridge had formed the view that the company was or was likely to be insolvent and had appointed a voluntary administrator.
If Mr Patton had genuinely held such a view, he would likely have asked the Proposed Directors how much time they required to reconsider their position. He did not do so. Instead, without any such enquiry, he adjourned the meeting sine die, and then an announcement was made to the ASX on the following day that the meeting would not occur for another ten weeks.
If the will of a majority of shareholders was (as Mr Patton knew) that the Incumbent Directors (other than Mr Catalano) be removed and the Proposed Directors be appointed, and that this occur on 10 February 2025, then an adjournment for ten weeks was apt to frustrate the will of majority of shareholders and to interfere with their statutory right to remove directors by resolution on two months’ notice (in circumstances where WAM had given its s 203D(2) notice on 9 December 2024). The effect of the purported ten-week adjournment was that these resolutions would not be put to shareholders for a period of more than four-and-a-half months after that notice was given.
Similarly, if Mr Patton had genuinely considered that the appointment of Mr Rathner was a matter which might potentially affect the outcome of voting on the resolutions for the removal of the Incumbent Directors and the appointment of the Proposed Directors, there was no good reason why the Section 249F Meeting was adjourned more than two months after the date that the Spill Meeting was to be held (being 18 February 2025). At both meetings, resolutions were to be put to shareholders concerning the composition of the Board, but one was scheduled to proceed one week later, while the other was put off for more than two months.
Mr Patton also told the Section 249F Meeting that his decision to adjourn was due to “concerns” that shareholders were not properly informed about “a dispute with the trustee in relation to an investment held by the Company which is currently carried at nil value” (see paragraph [130] above). This was a reference to the dispute between Keybridge and Mr Catalano regarding the ownership of ACM. Another of his “concerns” was stated to be that: “On 6 February 2025, WAM voted against their own resolution, and voting recommendation, in support of Mr Catalano”.
“This ACM thing was, was a game of poker, and [Mr Catalano] may well have changed his votes [on the resolutions to remove and appoint directors]. So, we were careful in what we – in what we did.”
Mr Patton and Mr Bolton were likely not planning to take steps to escalate the ACM issue, including making disclosure to shareholders regarding that dispute, for so long as there was a prospect that Mr Catalano might change his vote and support the Incumbent Directors.
Significantly, Mr Patton was unable, at the meeting, to articulate the reason why the ACM dispute was a matter that was relevant to the resolutions being put to shareholders at the Section 249F Meeting. Mr Hamilton’s note of the meeting records that:
“At multiple times before the purported adjournment of the meeting, the Chairman was asked how this meeting had anything to do with the ACM transaction with Mr Catalano and Resolution 7 … and why they are being used as the basis for the purported adjournment of the meeting, to which he had no answer.”
Further, despite Mr Patton having purported to adjourn the Section 249F Meeting on the basis that shareholders needed to know more about the ACM dispute before voting on resolutions regarding Mr Catalano’s future on the board, Mr Patton and the other directors of Keybridge did not make any disclosure to shareholders about this dispute in the period of more than two weeks between the “adjournment” of the Section 249F Meeting on 10 February 2025 and the holding of the Spill Meeting at which a resolution for the re-election of Mr Catalano as a director was put to shareholders. (The Spill Meeting was held at 4.30pm on 27 February 2025, having been postponed from 18 February 2025 to this date by an announcement made to the ASX on 17 February 2025.)
As noted above, Keybridge had, unsuccessfully, sought to make an announcement to the ASX in relation to the ACM dispute on the morning of the Section 249F Meeting (significantly, this being a point in time when it was apparent that Mr Catalano would not be changing his vote on the resolutions). Mr Patton was aware, prior to the Section 249F Meeting, that the ASX had indicated that the allegations made by Keybridge regarding Mr Catalano’s conduct in relation to ACM could not be made to the market unless Keybridge could provide “a factual basis” for those allegations (see paragraph [118] above). An available inference is that the reason why no allegations of the type outlined in the draft ASX announcement were subsequently made to shareholders is because the directors could not provide a factual basis for those allegations.
As set out above, Mr Patton also expressed a “concern” to Mr Broadfoot and at the Section 249F Meeting that WAM had voted against their own stated voting preference and in support of Mr Catalano remaining as a director. Mr Patton told Mr Broadfoot and those present at the Section 249F Meeting that this was one of the “concerns” on which he formed the view that the meeting should be adjourned.
There is little doubt that Mr Patton was concerned that WAM and Mr Catalano were voting together. Shortly after learning that Mr Catalano was no longer supporting the Incumbent Directors, he and Mr Bolton exchanged messages about whether or not the Section 249F Meeting could be postponed or adjourned. However, the concern being expressed at that time was not the need for further disclosure to be made to the shareholders, but rather the need for further discussions to be had with Mr Catalano in order to see if he would change his mind (see paragraphs [70]-[71] above).
In his affidavit, Mr Patton deposed, somewhat elliptically, that he had “concerns” about “Potential Chapter 6 issues associated with Mr Catalano and WAM’s coordinated activities”. No such concern was expressed to Mr Broadfoot or to the Section 249F Meeting as a reason to adjourn the meeting.
Such a concern is articulated in the “Chairman’s Statement” which is added to the end of Mr Patton’s minutes of the Section 249F Meeting (but which does not record anything said by Mr Patton at the meeting). In particular, the “Chairman’s Statement” records the following observations by Mr Patton:
“Prima facie Chapter 6 issues arising from WAM and Mr Catalano acting in concert, and against WAM’s own voting recommendations, with no explanation or clarification. Various emails and phone call communications with Company representatives indicate that the parties have acted in concert in a manner that does not comply with s. 606 of the Act. The matter needs to be determined before the Chair can properly inform his decision pursuant to rules 7.8(g) and 7.8(j) of the Company’s constitution as to the extent to allow WAM and entities connected to Mr Catalano to vote.”
Mr Patton accepted in cross-examination that he did not mention either rule 7.8(g) or rule 7.8(j) of the Constitution at the Section 249F Meeting.
Rule 7.8(g) could have no application, as it operates to exclude a member’s vote only in the situation where the notice which called the meeting specified that the member must not vote, or must abstain, or that their vote must be disregarded. Mr Patton agreed that there was no such statement in the notice which called the Section 249F Meeting.
Rule 7.8(j) provides that: “The chairperson may decide any difficulty or dispute which arises as to the number of votes which may be cast by or on behalf of any member and the decision of the chairperson is final”. No “difficulty or dispute” in relation to the votes which may be cast by any member (including Mr Catalano) or WAM was raised with or referred to Mr Patton as Chairman, either before or at the Section 249F Meeting.
This was a point conceded by Mr Patton in cross-examination, although the proposition had to be put repeatedly before the concession was forthcoming:
“Q. No difficulty or dispute in relation to the votes had been referred to you as chair, that's correct, isn't it?
A. I said I had a number of concerns in relation to the meeting.
Q. I am going to ask the question again. No difficulty or dispute as to the number of votes which may be cast on behalf of any member was referred to you as chair, is that correct?
A. I did have problems with the, the votes--
Q. I'm going to ask again. No difficulty or dispute arose as to the number of votes which may be cast on behalf of any member which was referred to you as chair, correct?
A. I'm not following your question. No, no, I'm, I'm just--
Q. Do you understand--
A. I'm not, I'm not--
Q. --I'm using--
A. I'm not trying to be difficult at all, I just - I'm just not following your question.
Q. Do you appreciate I am using the language of clause 7.8(j) of the Constitution?
A. Right, yeah.
Q. I'll ask again. No difficulty or dispute which arose as to the number of votes which may be cast by or on behalf of any member was referred to you as chair, was it?
A. Because we didn't get to it.
Q. The answer to my question is, "Yes"?
A. That's - well, it has to be because we didn't, we, we didn't get to it. There, there, there would have been objections had we got to it.
Q. How do you know that? Nobody had notified you of an objection? A. I - Mr Bolton was present at the meeting and Mr Bolton has a pretty good understanding of the, of the Corporations Act and, and the, and the Constitution of the company and I am not a betting man, but I would wager 20 cents that he would have raised an objection”
“I, I, I don’t know that I can adjudicate on them. I think they need to be determined by a court or a higher power than myself. But when you say - when you say ‘adjudicate’, I can't - I’m not determining it. All I’m saying is there are - these are the concerns that I have, they need to be - they need to be ventilated in front of the proper authority with a proper determination made so that parties can be properly informed. It’s - I, I can't sit there and go this is happening in front of my eyes so therefore I turn a blind eye to it, that, that, that is not right.”
Mr Patton took no steps to raise any concern about these matters with a “higher power”.
Keybridge had, shortly before the Section 249F Meeting, made two applications to the Takeovers Panel regarding WAM and Mr Ravell “acting in concert”, alleging a contravention of s 606 of the Act and alleging that they had “orchestrated a s 249F meeting to further their agenda” (see paragraph [59] above). However, Keybridge did not make any similar application to the Takeovers Panel in respect of WAM and Mr Catalano.
Mr Bolton and Mr Patton were aware that the Takeovers Panel had indicated that, while the Capital Raising Restraint Proceeding was before the Court, any Chapter 6 issue should be raised with the Court in that proceeding, rather than with the Panel (see paragraphs [61] and [67] above).
Keybridge did not raise any such issue with the Court prior to the Section 249F Meeting.
Mr Patton suggested that the failure to do so was because of limited funds. However, the Capital Raising Restraint Proceeding was in Court on the afternoon of 7 February 2025 and on the morning of 10 February 2025, after it was known that each of WAM and Mr Catalano had voted in favour of the resolutions to remove the Incumbent Directors (other than Mr Catalano) and to appoint the Proposed Directors. On each occasion, WAM’s application to restrain an adjournment of the Section 249F Meeting was before the Court. Keybridge did not, on either occasion, raise any allegation to the effect that s 606 of the Act had been, or may have been, contravened by reason of Mr Catalano “acting in concert with” WAM, and that this issue had to be determined before the meeting could proceed and the resolutions could be put to a vote.
Further, although Keybridge may have had limited funds, Mr Rathner had, to Mr Patton’s knowledge, been provided with substantial funding by Yowie, having received $118,000 into his trust account prior to giving his consent to act as administrator. Mr Patton acknowledged in cross-examination that he did not discuss or raise with Mr Rathner, prior to the Section 249F Meeting, “approaching the Court, as a higher power, to rule on or resolve this issue”.
Nor was any step taken to raise any such issue with either the Takeovers Panel or the Court in the period between the purported “adjournment” of the Section 249F Meeting on 10 February 2025 and the holding of the Spill Meeting on 27 February 2025.
Nor did Mr Patton or the other Director Defendants advance any contention, at the hearing before me, that in the event that the Section 249F Meeting was not validly adjourned and instead continued with Mr Hamilton as Chair, the resolutions to remove the Incumbent Directors (other than Mr Catalano) and to appoint the Proposed Directors were not validly passed, because some or all of the votes cast in favour of those resolutions by WAM or Mr Catalano should have been excluded.
“Apart from provisions in the rules of a body conferring on the chairman of a meeting power to adjourn, the position in general is that it is for a meeting to decide whether or not to adjourn and that the vote of the majority of those present decides the matter, so that the chairman in leaving the chair or adjourning the meeting, without the approval of a majority, in the absence of power under the rules enabling him to adjourn of his own initiative, does not bring about an adjournment or termination of the meeting (citing Shaw v Thompson (1876) 3 Ch D 233 (at p249)).”
WAM sought declarations that the resolutions to remove the Incumbent Directors (other than Mr Catalano) and the resolutions to appoint the Proposed Directors were passed at the Section 249F Meeting.
WAM noted, by reference to the passage in Wishart set out in paragraph [227] above, that because the purported adjournment was not valid, the meeting was not adjourned or terminated when Mr Patton left the chair. In Wishart at 174, the Court held that, in such circumstances:
“The persons present or remaining after [the] purported adjournment may elect their own chairman and carry on with the uncompleted business of the meeting (Catesby v Burnett [1916] 2 Ch 325; National Dwelling Society v Sykes [1894] 3 Ch 159).”
“Unquestionably it is the duty of the chairman, and his function, to preserve order, and to take care that the proceedings are conducted in a proper manner, and that the sense of the meeting is properly ascertained with regard to any question which is properly before the meeting. But, in my opinion, the power which has been contended for is not within the scope of the authority of the chairman — namely, to stop the meeting at his own will and pleasure. The meeting is called for the particular purposes of the company. According to the constitution of the company, a certain officer has to preside. He presides with reference to the business which is there to be transacted. In my opinion, he cannot say, after that business has been opened, ‘I will have no more to do with it; I will not let this meeting proceed; I will stop it; I declare the meeting dissolved, and I leave the chair.’ In my opinion, that is not within his power. The meeting by itself (and these articles certainly apply to what I have said) can resolve to go on with the business for which it has been convened, and appoint a chairman to conduct the business, which the other chairman, forgetful of his duty or violating his duty, has tried to stop because the proceedings have taken a turn which he himself does not like.”
“At common law, if the chairperson neglects or fails in his or her duty to proceed to business or put a motion to the meeting, another person may assume procedural control with the acquiescence of those present and put the motions to the meeting so as to enable the decision of the meeting to be ascertained: National Dwelling Society v Sykes [1894] Ch 159 at 162.”
WAM submitted that, following the purported (but ineffective) adjournment of the Section 249F Meeting:
the meeting continued with Mr Hamilton elected as chairperson;
Mr Hamilton proceeded to read through each of the resolutions and to call for shareholders to cast their votes on each resolution;
Mr Hamilton declared the poll and charged the independent observer in attendance to count the votes; and
Mr Hamilton, as chairperson, subsequently announced that all of the resolutions were duly passed (with the exception of the resolution to remove Mr Catalano as a director).
In their opening written submissions, the Director Defendants and Mr Rathner did not specifically address Issue 3 and, in particular, did not advance a contention that, if the purported adjournment was invalid, there was some reason why the Court should find that the resolutions were not put to shareholders and passed at the Section 249F Meeting.
In closing address, Senior Counsel for the Director Defendants submitted that the Court should find that Mr Patton was not replaced as chairperson and, therefore, the steps purportedly taken by Mr Hamilton as chairperson, including putting the resolutions to a vote at the meeting, were invalid.
In this regard, reference was made to the terms of rule 7.5 of the Constitution, which provides as follows:
“7.5 Chairperson of general meetings
(a) The chairperson of directors or, in the absence of the chairperson of directors, the deputy chairperson is entitled, if present within 15 minutes after the time appointed for a general meeting and willing to act, to preside as chairperson at the meeting.
(b) The directors present may choose one of their number to preside as chairperson, if at a general meeting:
(1) there is no chairperson or deputy chairperson of directors;
(2) neither the chairperson nor the deputy chairperson of directors is present within 15 minutes after the time appointed for the meeting; or
(3) neither the chairperson nor the deputy chairperson of directors is willing to act as chairperson of the meeting.
(c) If the directors do not choose a chairperson under rule 7.5(b), the members present must elect as chairperson of the meeting:
(1) another director who is present and willing to act; or
(2) if no other director willing to act is present at the meeting, a member who is present and willing to act.
(d) A chairperson of a general meeting may, for any item of business or discrete part of the meeting, vacate the chair in favour of another person nominated by him or her.”
As the Director Defendants noted, the default position is set out in rule 7.5(a). However, Mr Patton, who was present at the meeting, was not willing to preside as chairperson following his purported adjournment of the meeting. Although he stayed in the room after leaving the chair, he made clear that he was of the view that the meeting had come to an end. According to Mr Hamilton’s note of the meeting, Mr Bolton and Mr Patton stood over Mr Hamilton when he was seated at the front of the meeting “saying ‘What are you doing?’ ‘You’re embarrassing yourself’ and ‘We have closed the meeting’ on numerous occasions”.
As regards rules 7.5(b) and (c), there were three directors of Keybridge “present” at the Section 249F Meeting, namely, Mr Bolton and Mr Patton (who were there in person) and Mr Catalano (who was attending by telephone). Plainly, as the evidence above demonstrates, neither Mr Bolton nor Mr Patton was willing to act as chairperson of the Section 249F Meeting after its purported adjournment. However, Senior Counsel for the Director Defendants submitted that “Mr Catalano could have been appointed”, stating as follows:
“In fact, when you look at the minutes, Mr Catalano said that he'd wanted to be chair but that wasn't what happened. The minutes, I'll come back to the minutes.
Subrule 7.5(c) deals with what happens if 7.5(b) isn't complied with, ‘The members must select as chairperson of the meeting another director who is present and willing to act.’ Now, there was no election of Mr Catalano. Or (b), ‘If no other director willing to act is present at the meeting, a member who is present and willing to act.’ That didn't occur either.
What happened was Mr Hamilton said, ‘Well, here I am, I'm counting the votes,’ after Mr Patton the chairman had adjourned the meeting. In our submission, your Honour would not conclude that that's a valid meeting. Even if one were to conclude that Mr Patton was wrong in adjourning the meeting or that it was for too long, the remedy, in our submission, is that the meeting be held again.”
“Mr Catalano asked why JP was chairing the meeting now that Company was in Administration. JP advised that he had been provided with authority from the Administrator to do so. Mr Catalano asked why he hadn’t been approached to Chair the meeting. JP said this was probably a matter for the Administrator. Notably, JP is the Chair pursuant to Rule 7.5(a) of the Company’s constitution.”
When Mr Patton purported to adjourn the meeting, he closed the telephone line (and therefore, Mr Catalano ceased to be present at the meeting).
Mr Hamilton did not simply then say: “Well, here I am. I’m counting the votes”. Instead, as recorded in his note of the meeting, he “put [himself] forward to be elected on the floor to continue the unfinished business that was purportedly adjourned by Mr Patton”. He was subsequently elected as chairperson “by way of a shareholder motion on the floor (seconded by Mr Ravell)”. Mr Catalano was then dialled back into the meeting by Mr Ravell on his mobile phone and he remained on the call for the rest of the meeting, without expressing any disagreement either with Mr Hamilton acting as chairperson or with the resolutions being put to a vote by Mr Hamilton.
Having regard to the evidence set out above, I am satisfied that, following the purported (and ineffective) adjournment of the Section 249F Meeting by Mr Patton, Mr Hamilton was validly elected as chairperson by the shareholders present at the meeting, in circumstances where no other director who was present at the meeting was willing to act as chairperson. Mr Hamilton then, as chairperson, proceeded to conduct the business of the Section 249F Meeting by reading each of the resolutions and putting them to a vote.
The Director Defendants did not make any submissions challenging the result of that poll. They did not, for example, advance any contention that the votes of any shareholder should have been excluded by the chairperson for any reason (whether because of any contravention of s 606 of the Act or otherwise).
Accordingly, I reject the Director Defendants’ submissions that the appropriate remedy is “that the meeting be held again”. The Section 249F Meeting did not conclude with Mr Patton’s purported, but ineffective, adjournment of that meeting. Instead, it continued with Mr Hamilton as chairperson and the business of that meeting was conducted by him, with each of the resolutions having been put to shareholders at that meeting.
For those reasons, it is appropriate that the Court make declarations substantially in the terms sought by the Plaintiffs in prayer 5 of their Originating Process, to the effect that:
on 10 February 2025, Keybridge validly held a meeting convened in accordance with s 249F of the Act
at the Section 249F Meeting, the members of Keybridge resolved that the Incumbent Directors (other than Mr Catalano) be removed as directors of Keybridge and the Proposed Directors be appointed as directors of Keybridge; and
following the Section 249F Meeting on 10 February 2025, the directors of Keybridge were Mr Catalano, Mr Wilson, Mr Hamilton, Mr McCathie and Mr Ravell.
Issues 4 and 5 concern the appointment of Mr Rathner as voluntary administrator of Keybridge and are as follows:
whether the Board of Keybridge properly and genuinely formed the opinion that Keybridge was insolvent or was likely to become insolvent at some future time (Issue 4); and
whether the Board of Keybridge purportedly appointed the voluntary administrator, Mr Rathner, for an improper purpose (Issue 5).
So far as Issue 4 is concerned, the Plaintiffs accepted that “the material before the board provided a basis for forming the opinion contemplated by s 436A” and “the Court may accept that Mr Dukes and Mr Catalano had that opinion”.
So far as Issue 5 is concerned, the Plaintiffs did not dispute that each of Mr Dukes and Mr Catalano was acting for a proper purpose in joining in the resolution to appoint an administrator. However, the Plaintiffs contended that each of Mr Bolton and Mr Patton was acting for an improper purpose, and framed the question of the Court as follows:
“The question is whether the board, unaffected by the [im]proper purpose that drove Mr Patton and Mr Bolton on our case, … would have appointed Mr Rathner in particular and on 9 February [2025] rather than a later date.”
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.
“It is not entirely clear whether s 436A(1) itself confers power on the board to pass such a resolution, or merely assumes that under its constitution, the board has (as it normally does) the power to manage the company and consequently the power to pass resolutions of this kind. Either way, however, the power to pass such a resolution is vested in the board of directors as such. Since the directors, when exercising their powers as a board, are acting in a fiduciary capacity, the power to pass the resolution envisaged by s 436A (1) is a fiduciary power.”
If the power to appoint a voluntary administrator is exercised for an ulterior or extraneous purpose (that is, some purpose unrelated to the objects of Part 5.3A of the Act as set out in s 435A), then the exercise of the power is invalid: Kazar v Duus (1998) 88 FCR 218 at 233.
If it is found that the directors are motivated by a purpose of self-interest, such as a desire to retain their control of the company or to defeat the legitimate exercise of shareholders’ powers inimical to their personal interests, their decision is one that is inconsistent with due performance of their duties: In the matter of Condor Blanco Mines Ltd [2016] NSWSC 1196 at [113] (Barrett AJA); referring to Howard Smith Ltd v Ampol Petroleum Ltd [1974] UKPC 4; [1974] AC 821. If such an inconsistent purpose is causative, in the sense that, but for its presence, the power would not have been exercised, the tainted action is vitiated by the impermissible purpose and is rendered voidable as distinct from void: ibid, referring to Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285 at 294-5 (Mason, Deane and Dawson JJ); [1987] HCA 11.
Accordingly, it is necessary, first, to ascertain the actual purpose of the directors who voted in favour of appointing an administrator; secondly, to determine whether that purpose was proper or improper; and thirdly, to consider whether the resolution to appoint a voluntary administrator would have been passed were it not for the improper purpose: Cadwallader at [224]; Re Warwick Keneally as administrator of Australian Blue Mountain International Cultural & Tourist Group Pty Ltd (admin apptd*)* [2015] NSWSC 937 at [96] (Black J).
The exercise of the power to appoint an administrator will be invalid, and the purported appointment will be invalid, “if that power is exercised for an ulterior or extraneous purpose and that purpose is substantial in the sense that the decision would not have been made but for the ulterior purpose”: Re Lime Gourmet Pizza Bar (Charlestown) Pty Ltd [2015] NSWSC 244 at [23] (Black J); Australian Blue Mountain International Cultural & Tourist Group at [96]; and VRM Global Holdings Pty Ltd v Savannah AG Research Pty Ltd (admins apptd*), in the matter of Savannah AG Research Pty Ltd* [2023] FCA 131 at [11]-[12] (Charlesworth J).
In identifying the actual purpose of the directors who voted in favour of the resolution to appoint an administrator, the Court will have regard to the character and operation of the resolution in relation to the facts and circumstances surrounding it, and not merely to the motives of individual directors (although statements about motives and subjective intentions are relevant): at [224]; [2016] VSC 120 at [23].
In respect of the timing of the resolution to appoint Mr Rathner, the Plaintiffs emphasised the following matters: that Mr Bolton only took steps to approach Mr Rathner after he was informed of Mr Catalano’s voting intentions; that the appointment of Mr Rathner was precipitated by the letters of demand and default sent by Yowie (in circumstances where Keybridge had a relevant interest in 78% of Yowie’s shares and where Mr Bolton and Mr Patton were two of the three directors of Yowie); and that Mr Bolton and Mr Patton called the Board meeting to vote on the resolution to appoint an administrator on the evening before the Section 249F Meeting was to be held.
For the reasons given below, I am not satisfied that those matters establish some improper purpose as regards the timing of the resolution to appoint an administrator or that, but for any such purpose, a resolution to appoint an administrator would not have been passed by the Board on 9 February 2025.
Prior to learning of Mr Catalano’s voting intentions, Mr Bolton had expressed a concern that Keybridge had “no cash to pay for anything” including “staff” unless the proposed capital raising went ahead, and that there was a “real risk of a voluntary administrator being appointed” if the Court granted an injunction in respect of Resolution 7 (see paragraph [56] above).
Mr Catalano himself was raising concerns about Keybridge’s solvency in the week before the Section 249F Meeting (see paragraph [78] above). In an email sent to his fellow directors, he stated that he was “concerned as a director to ensure that we manage and avoid any risks of trading whilst insolvent in the interests of [Keybridge’s] shareholders and creditors as appropriate”, and sought information on Keybridge’s financial position. At around the same time, and in advance of any meeting between Mr Bolton and Mr Rathner, Mr Dukes was raising concerns about Keybridge’s solvency (see paragraph [75] above). There is no reason to conclude that those concerns were not genuinely held. Neither Mr Catalano nor Mr Dukes was (or was alleged to be) acting for any ulterior purpose in raising those concerns in the days leading up to the Section 249F Meeting.
The Plaintiffs emphasised the fact that Yowie sent its letter of default on a Sunday morning, the day before the Section 249F Meeting, and that this precipitated the Board meeting being called for later that day, at which the directors resolved to appoint Mr Rathner. However, there is no basis for finding that Yowie’s actions (or their timing) were orchestrated or influenced by Mr Bolton or Mr Patton.
For a period of time prior to sending its letter of demand, Yowie had been making requests to Keybridge for payments to be made in respect of its loan, because of Yowie’s own cash flow constraints. For example, on 25 January 2025, Mr Andrew Ranger, who was a director of Yowie, sent a text message to Mr Bolton with the following request: “Are you able to get some interest dollars from [Keybridge] to [Yowie]? Will need to pay for a balance payment on toys for Dragon. 50k USD”. As set out at paragraph [52] above, Mr Patton had deposed in his affidavit of 24 January 2025, prior to becoming aware of Mr Catalano’s voting intentions, that Yowie “would “shortly require [its] loans to be repaid, at least in part, so that it can fund its operations”.
“I understand that both of you are both in a difficult position as much of what is happening at Keybridge is not in your control, but also understand that you are in a conflicted position on this matter at Yowie. Given these conflicts on the Board and Management addressing the Keybridge issue, which is now fundamental to our business and my director’s duties, I’d like to propose that the Board establish a special sub-committee empowered in dealing with the Keybridge loan – to this end, I propose that [Mr Milani] and I be appointed to this committee, although I’m open to your suggestion otherwise. The Board should delegate authority for this committee to deal with all matters related to the Keybridge loan.”
Following this email, the directors of Yowie resolved to establish an independent subcommittee chaired by Mr Ranger with “delegated authority of the Board to make decisions on [Yowie’s] behalf on any matter that involves the Keybridge Reciprocal Loan Facility” (the Yowie Subcommittee). Neither Mr Bolton nor Mr Patton was a member of the Yowie Subcommittee.
On the morning of 5 February 2025, the Yowie Subcommittee met and “agreed that Yowie must request 100% repayment of the loan balance”. The Yowie Subcommittee determined that a “formal demand for full repayment of the principal amount … be sent to [Keybridge]”.
There was evidence that the conclusions reached by the Yowie Subcommittee were shared with the Yowie board (and therefore with Mr Bolton and Mr Patton). However, that does not provide any basis for concluding that the decision to send a letter of demand was reached by anyone other than the members of the Yowie Subcommittee.
There was a further meeting of the Yowie Subcommittee on the morning of 9 February 2025. At this meeting, the Yowie Subcommittee “unanimously agreed to send a letter of default to Keybridge Capital for nonpayment of the requested principal and overdue interest”. These minutes were sent to Mr Bolton and Mr Patton shortly after the meeting, with the letter of default following around five minutes later. There was no evidence to indicate that Mr Bolton or Mr Patton were consulted about the Yowie Subcommittee’s decision. Instead, Mr Bolton sent an email to Mr Ranger, minutes after receipt of the letter of default, describing the letter as “unfortunate” (see paragraph [108] above). In particular, Mr Bolton indicated that he was concerned by the letter being sent at that time, telling Mr Ranger that:
“Keybridge is currently working through its liquidity and will come back to Yowie’s notice shortly. I discourage you from taking further steps until we have a reasonable opportunity to respond.”
Immediately upon the receipt of the letter of default, Mr Patton took steps to call a meeting of the Board of Keybridge for the afternoon of the same day (at which the Board resolved to appoint Mr Rathner as voluntary administrator).
Having regard to those matters, I am not satisfied that either Mr Bolton or Mr Patton had any control over the decision of Yowie to send letters of demand and default, or over the timing of those letters, or that the timing of the Board meeting on 9 February 2025 is explained by Mr Bolton and Mr Patton acting for an improper purpose.
In closing address, the Plaintiffs did not submit that the Court should find that the independent Yowie Subcommittee was not in fact independent, but instead submitted that the Court should find that “Mr Patton and Mr Bolton could have procured an accommodation between the two entities if they wanted to and if it suited their interest.” The email which Mr Bolton sent to Mr Ranger shortly after the letter of default was received provides some support for the proposition that Mr Bolton believed that there might be scope to come to some accommodation with Yowie about the loan. However, I am not satisfied that there is a sufficient basis to conclude, given the evidence of Yowie’s cash needs, that such an accommodation “could have been procured” if Mr Bolton had sought it.
In any case, it is not apparent that, if Mr Dukes and Mr Catalano had been informed that such an accommodation could be achieved, it would have affected their decision to appoint an administrator.
Mr Dukes gave unchallenged evidence that he had reached the view that Keybridge “was simply unable to pay the debts that were due to be paid by it” before Yowie’s letter of demand was sent. When asked in cross-examination questions regarding the timing of the Yowie demand, Mr Dukes stated that: “it didn’t really seem all that relevant to me in making that decision about solvency”.
Mr Catalano made some comments at the Section 249F Meeting which suggest that he had suspicions about the process which led to Yowie issuing the letter of default on 9 February 2025. According to Ms Reid’s note of the meeting, Mr Catalano stated that “the independent committee is Andrew Ranger, who reports directly to Nick Bolton” and pointed out that Mr Bolton and Mr Patton, who knew Mr Catalano’s voting intentions, were “coincidentally directors of Yowie, the entity which has also put the [Keybridge] into administration”. According to Mr Hamilton’s note of the same meeting:
“Mr Catalano noted the convenience of the timing of the Yowie board making the decision to call in the loan with [Keybridge] (noting [Keybridge owns 78-79% of Yowie, and Mr Patton and Mr Bolton make up two of the three directors of the board of Yowie, with the third director of Yowie allegedly according to Mr Catalano being a direct report to Mr Bolton).”
Those matters indicate that Mr Catalano suspected that (to adopt the words of the Plaintiffs’ submission) “Mr Patton and Mr Bolton could have procured an accommodation between the two entities if they wanted to and if it suited their interest”. Despite apparently holding such a view on 10 February 2025 (and therefore presumably holding such a view at the time of the Board meeting on 9 February 2025), Mr Catalano voted in favour of the resolution to appoint an administrator. I infer from these matters that, as was the case with Mr Dukes, Yowie’s demand for repayment was not critical to Mr Catalano’s decision to join in the resolution at the 9 February Board meeting to appoint an administrator.
This inference is further supported by the following matters: (a) Mr Catalano raised his concerns about solvency in advance of Yowie’s letter of demand being sent; and (b) the Board minutes record that the Board reached the conclusion that Keybridge was unable to pay its debts as and when they fall due, based not only on the Yowie demand, but based also on Keybridge’s inability to pay various invoices issued by its solicitors, Gadens, totalling some $620,000 (with further invoices of $150,000 to follow for the January Court Hearing), and on its “inability to pay the upcoming wages for February 2025”.
Even if the Plaintiffs had established that, in organising the Board meeting for the evening of 9 February 2025, Mr Bolton and Mr Patton were acting for the improper purpose of seeking to prevent the Section 249F Meeting going ahead on the following day, I would not have been satisfied that the “but for” test was established. It is plain that Mr Catalano wanted the Section 249F Meeting to proceed on 10 February 2025. However, in circumstances where he had that intention, he thought it appropriate to join in the unanimous resolution of the Board on the evening before that meeting that an administrator be appointed.
According to the minutes of the 9 February Board meeting, the directors of Keybridge (including Mr Catalano and Mr Dukes) specifically considered the fact that the Section 249F Meeting was scheduled to be held on the following day, but concluded that “the Company’s solvency and the directors’ duties takes precedence over external events, so this was not a consideration by the Board”.
The Plaintiffs noted that, although various persons were presented to the Board as potential administrators, all of the options other than Mr Rathner were described either as being too expensive or as not being independent (see paragraph [113] above). WAM further noted that there was no evidence that any person other than Mr Rathner was approached to discuss a potential appointment as administrator; that there does not appear to have been a basis for concluding that Mr Rathner would be significantly cheaper than other options, since he had requested an upfront payment of $1m into trust (see paragraph [93] above); and that Keybridge had previously asserted, in the Winding Up Proceeding, that Keybridge had claims against Mr Rathner for misleading conduct.
Against that background, the Plaintiffs submitted as follows:
“…the selection of Mr Rathner, and the putting forward of Mr Rathner and his firm as really the only choice that the board as a whole is being invited to accept, can only be understood on the basis that there was an arrangement struck between Mr Bolton and Mr Rathner as to a range of matters, including how the administration was unfold, that is in a manner favourable to the ex-directors and to [Yowie]. The improper purpose we say was to avoid the consequences of the s 249F meeting by providing a pretext for an adjournment, and another was to maximise the control of the company or its assets by having a friendly administrator.
In fairness to Mr Catalano and Mr Dukes, it appears they went along with the appointment of Mr Rathner rather than someone else. The evidence doesn't indicate that they were aware of the arrangement that I'm about to submit existed between Mr Bolton and Mr Rathner. But given the way the matters was presented for decision by Mr Patton as chair and by Mr Bolton, it's not surprising that they've voted in favour. They weren't presented with the other options, which plainly would have been available if the process weren't being managed by Mr Bolton and Mr Patton to give effect to their plan.”
The Plaintiffs did not articulate the terms of any such “arrangement struck between Mr Bolton and Mr Rathner as to a range of matters” in their opening submissions in chief or in reply, and did not otherwise refer in any materials filed or served in advance of the hearing to the existence or terms of any such arrangement. Mr Rathner was not given the opportunity to respond to any such allegation in his affidavit evidence. Nor did the Plaintiffs squarely put the existence or terms of any such arrangement to Mr Rathner in cross-examination. I accept Mr Rathner’s submission that, in those circumstances, he would be denied procedural fairness if the Plaintiffs were allowed to raise the existence of any such arrangement in closing address.
After counsel for Mr Rathner raised this objection in closing address, the Plaintiffs said, in reply, that they did not “advance an independent case of misconduct against Mr Rathner” and that they did not “put a case based on an agreement” between Mr Rathner and Mr Bolton regarding the conduct of the administration. Instead, the Plaintiffs submitted that their case was “the case that we clearly opened on and ran”, namely, “that Mr Rathner was not independent, was in a position of conflict, that Mr Bolton and Mr Patton knew and must have known of that, and that that permits an inference to be drawn that they were actuated by an improper purpose”. I accept that a case, put in those terms, is consistent with the Plaintiffs’ opening submissions and that this case was put to Mr Rathner, Mr Bolton and Mr Patton in cross-examination. It is this case which I address below.
The issues raised in respect of Mr Rathner’s independence fall primarily into pre-appointment issues and post-appointment issues.
The pre-appointment issues all relate in various ways to Mr Rathner’s role as liquidator of PR Finance Group Ltd (PRF****G), AMX No 1 Pty Ltd and Australian Money Exchange Pty Ltd (AME) (together, the PR Group Companies). The relevant background is briefly summarised below.
On 19 May 2014, Mr Rathner was appointed as liquidator to each of the PR Group Companies. In 2019, AME and PRFG commenced proceedings in the Supreme Court of Victoria (the PRFG Proceedings), seeking relief against various directors and officers of those entities, as well as against the underwriters under the Directors & Officers (D&O) insurance policy (the Underwriters). The PRFG Proceedings were funded by Keybridge. On 22 April 2024, Keybridge paid $1.8m into court as security for costs.
On 7 May 2024, the PRFG Proceedings came on for hearing. On the first day, the Underwriters sought leave to amend their defence to plead an exclusion in respect of any claim instigated by or on behalf of any person holding more than 25% of the issued shares in the insured company. That was significant because Keybridge owned 100% of the issued share capital in PRFG. On 9 May 2024, leave to amend was granted. On 10 May 2024, AME and PRFG sought leave to discontinue the proceedings, leaving a dispute remaining about costs.
The argument on costs was heard on 9 August 2024 and judgment was delivered on 27 August 2024: Australian Money Exchange Pty Ltd (in liq) v Llewellyn [2024] VSC 511. Delany J expressed the view that “if Mr Rathner and Keybridge had taken the trouble to look at the insurance policy and to obtain advice on the relevant exclusion, they would not have instituted the proceedings” (at [115]). His Honour noted that no party was critical of the failure of previous legal advisers to give such advice to Mr Rathner or Keybridge, and observed that this was appropriate, given that “the plaintiffs’ legal representation chopped and changed and lacked continuity” (at [109]-[112]). There was evidence from Mr Bolton that the plaintiffs’ costs of the proceedings “exceed several million dollars” and Delany J commented that he did not expect the Underwriters’ costs “to be much less”, adding: “Those costs have been incurred unnecessarily” (at [138]). His Honour indicated that he would make orders that the plaintiffs pay the Underwriters’ costs and that such costs be paid from the security paid into court by Keybridge (at [141]).
In its financial statements for the year ending 30 June 2024 (which were audited by William Buck), Keybridge made the following disclosure regarding a loan provided in respect of the PRFG Proceedings:
“During the current year, Yowie Group Ltd provided a loan to the liquidator of PR Finance Group Limited (‘PRFG’) of $1.5 million with an interest rate of 12% p.a. to be utilised as cash security for its recovery actions [that is, the PRFG Proceedings]. Keybridge agreed to indemnify Yowie against any loss for the provision of this loan to PRFG. The initial term of the loan is for a period of up to 4 months, subject to further agreement between the parties. Upon execution of the liquidation, Yowie will have ranking above other existing creditor claimants, including those of the Company.”
“There was a loan receivable from the liquidator of PR Finance Group Limited (‘PRFG’) of US$1 million (A$1.5 million) as of 30 June 2024 with interest rate of 12% p.a. to be utilised as cash security for its recovery actions [that is, the PRFG Proceedings] (2023: Nil). [Keybridge], the related party of N Bolton and J Patton has agreed to indemnify the Group against any loss for the provision of this loan to PRFG.”
On 21 October 2024, Lowe Lippman issued an invoice to Keybridge in the amount of $179,633.94 in respect of the work performed by Mr Rathner as liquidator of the PR Group Companies (the LL Invoice). The LL Invoice was not paid by Keybridge.
On 29 October 2024, Mr Bolton sent an email to Mr Rathner in relation to the LL Invoice, stating as follows:
“ Keybridge ceased funding when it found out that the insurance didn’t respond. You understood this and went on record with the court to withdraw given that circumstance. What commercial basis would we continue to fund this matter after already withdrawing our funding?
You can’t expect the secured creditor to fund you into perpetuity after there is no prospect of return to the secured creditor? We funded you on a faulty premise relying upon advice received from you that was incorrect”
Mr Rathner appeared as a supporting creditor in the Winding Up Proceeding. On 6 November 2024, he affirmed an affidavit in that proceeding, in which he asserted that Lowe Lippman was a creditor of Keybridge in the amount of the LL Invoice. He referred to an email from Mr Ho of Keybridge dated 6 April 2017, in which Mr Ho stated that Keybridge “will provide secured creditor funding for [the PR Group Companies] (once cash has been used up) on a monthly basis on presentation of supporting WIP statements and third-party invoices/supporting documentation (as applicable)”.
On 9 November 2024, Mr Patton swore an affidavit in the Winding Up Proceeding. Mr Patton responded as follows to Mr Rathner’s claim that Lowe Lippmann was a creditor of Keybridge:
“Mr Rathner asserts an obligation of Keybridge to pay for expenses incurred, based on communications going back to 2017. This is disputed. The basis for the dispute over this amount is that Keybridge withdrew its funding of the proceeding prior to the services that are the subject of Mr Rathner’s tax invoice and second because Keybridge’s position is that it has an offsetting claim against Lowe Lippmann in respect of misleading or deceptive conduct in respect of the prospects of the proceeding which Keybridge funded. These matters are referred to in an email between Nicholas Bolton and [Mr Rathner] dated 29 October 2024…”
(The email referred to by Mr Patton is the email set out in paragraph [290] above).
On 12 November 2024, Mr Patton swore a further affidavit in the Winding Up Proceeding in relation to Mr Rathner’s affidavit. Mr Patton deposed that Keybridge had “relied on representations made by Mr Rathner that [a particular insurance policy] would respond to the claim [made by the PR Group Companies] and thus it was in [Keybridge’s] interest to fund the litigation to recover against the insurer”. Mr Patton stated that: “I believe that Keybridge has an off-setting claim against the liquidator and Lowe Lippman for misleading and deceptive conduct in respect of representing the prospects of success of the [PRFG Proceedings]”.
On 6 January 2025, Mr Rathner made the decision to reverse the LL Invoice. He deposed that:
“…I cancelled the invoice as I formed the view that Keybridge was not liable for the costs and expenses I incurred in my capacity as liquidator of [the PR Group Companies]. I ha[d] also formed the view that I was able to recover those fees from the winding up of [the PR Group Companies] pursuant to the attached direction authority dated 20 July 2023. By that direction, the Company gave an irrevocable authority by which the Company, as secured creditor of Eye Plantain Pty Limited (‘Eye Plantain’), irrevocably authorised and directed that funds that would otherwise be paid to the Company be paid as advances in the winding up of: Blue Sennar Air Pty Limited, PR Finance Group Limited, Australian Money Exchange Pty Ltd and AMX No 1 Pty Ltd so that these companies could meet the ongoing fees and expenses of the liquidator (including legal fees) as applicable.”
The Eye Plantain liquidation was unrelated to the liquidation of the PR Group Companies.
On 4 February 2025, Mr Rathner sent an email to Mr Bolton and Mr Patton requiring that Keybridge provide funding of more than $190,000 to the PR Group Companies to cover the “WIP” in the liquidation of those companies and storage costs.
On the same day as Mr Rathner made this request for funding, Mr Bolton sent a text message to Mr Rathner to arrange to meet with him.
On 5 February 2025, Mr Bolton met with Mr Rathner to discuss his potential appointment as voluntary administrator of Keybridge. In his affidavit, Mr Bolton gave the following evidence of the matters discussed at this meeting:
“…Mr Rathner and I had a civil conversation that led to me inquiring whether he was available to act as administrator of Keybridge if the Board considered it necessary to appoint an administrator. Mr Rathner advised that he would consider taking an appointment subject to seeing Keybridge’s King’s Counsel advice and obtaining his own separate Senior Counsel advice that such an appointment was appropriate in the circumstances.”
“I met with Mr Bolton on 5 February 2025 and he told me that the meeting was in relation to [Keybridge]. Specifically, he expressed the view that [Keybridge] was ‘asset rich and cash poor’. I recall that Mr Bolton explained the matters that had led to [Keybridge’s] position including what had changed since the [Winding Up Proceeding], however, I do not specifically recall the matters he referred to. I asked him if [Keybridge] had any assets to sell and he said words to the effect of ‘not in the near term’. We did not have any discussion on specific asset realisation. The meeting ended with him accepting my suggestion that [Keybridge] obtain Senior Counsel’s advice in relation to solvency. I said that if [Keybridge] intended to proceed to Administration, I would obtain my own advice in relation to solvency and my ability to take an appointment as Administrator.”
I will address separately below the propositions put to Mr Rathner and Mr Bolton in cross-examination regarding the matters discussed at this meeting.
On 9 February 2025, Mr Rathner obtained a written opinion from Mr Daryl Williams KC. One of the issues which Mr Williams addressed was “whether Mr Rathner’s current and prior relationships with Keybridge would make it inappropriate for him to accept the proposed appointment”. On the instructions provided to him, Mr Williams advised that there was “no ethical impediment to Mr Rathner accepting the proposed appointment”. However, Mr Williams concluded his advice with the following statement:
”It goes without saying that Mr Rathner would nonetheless need to disclose his prior relationships and dealings with Keybridge, including the prior appointments, in his Disclosure of Independence, Relevant Relationships and Indemnities (DIRRI) in accordance with the [Act] and the ARITA Codes. No doubt, as an experienced Registered Liquidator, Mr Rathner does not require my advice as to how to complete a DIRRI, in this or any other matter.”
“In November 2024, Lowe Lippmann (LL), sought to be a supporting creditor in [the Winding Up Proceeding]. In that proceeding, LL claimed to be a creditor of [Keybridge]in the sum of $179,633.94 including GST pursuant to an invoice from LL to [Keybridge](LL Claim) arising from the winding up of the [PR Group Companies]. [Keybridge]denied that it was indebted to LL in respect of the LL Claim, or at all. In the event, LL did not take any active role in the WAM windup proceeding. Accordingly, the validity of the LL Claim was never tested in that proceeding.
On 6 January 2025, LL credited the invoice and the claim was no longer being made against [Keybridge]. The reversal of the invoice was prior to me first being approached on 5 February 2025 about the possibility of a proposed appointment.
Rather than pursue the LL Claim, I relied upon an irrevocable authority previously provided by [Keybridge], in its capacity as secured creditor, dated 23 July 2023 by which my remuneration, costs and expenses are gradually being paid from revenue generated from the assets of those companies which are secured in favour of [Keybridge]– specifically, real property comprising a conference centre owned by Eye Plantain Pty Ltd and Blue Sennar Air Pty Ltd. Since 6 January 2025 LL has not asserted that it is a creditor of [Keybridge].
Prior to accepting the appointment as Administrator, I sought King’s Counsel advice. I have determined that that [sic] there was no impediment to me accepting the appointment.”
The Plaintiffs raised three issues in respect of Mr Rathner’s independence at the time of his appointment as voluntary administrator, which were said to arise from the matters set out above.
The first concerns the recovery of the remuneration claimed to be owing to Lowe Lippman for Mr Rathner’s services as a liquidator of the PR Group Companies. As noted above, the LL Invoice was previously issued in respect of this remuneration, which was the basis on which Lowe Lippman appeared as a supporting creditor in the Winding Up Proceeding. However, Lowe Lippman subsequently reversed the LL Invoice in early January 2025.
As a result of the LL Invoice being reversed, Mr Williams advised Mr Rathner that Lowe Lippman was no longer a creditor of Keybridge, such that s 448C(1)(a) of the Act did not present an obstacle to Mr Rathner accepting an appointment as voluntary administrator. Further, Mr Williams advised that the decision to reverse the LL Invoice was a “sound one”, given that the substance of Keybridge’s agreement to provide secured funding for the liquidation was not that Keybridge was promising to meet Mr Rathner’s remuneration and expenses as liquidator of the PR Group Companies, but instead that Keybridge was promising to make secured loans to the PR Group Companies, so as to enable them to meet Mr Rathner’s remuneration and expenses.
Mr Rathner has on a number of occasions, including as recently as 4 February 2025, required Keybridge to provide funding to the PR Group Companies, specifically for the purposes of meeting his WIP as liquidator. Keybridge has not done so. That appears to be because the directors of Keybridge have adopted the view, as expressed in Mr Bolton’s October 2024 email and Mr Patton’s November 2024 affidavit, that Keybridge withdrew its agreement to provide funding prior to the relevant services being provided in the liquidation of the PR Group Companies and that, further, Keybridge has an offsetting claim (addressed below).
Mr Rathner is accordingly now seeking to recover the funds to pay for his remuneration and expenses as liquidator of the PR Group Companies by what he acknowledged in cross-examination to be a “self-help” remedy, namely, by relying on a “Direction Authority” from Keybridge to divert to the PR Group Companies funds which would otherwise be payable to Keybridge in another, unrelated, liquidation (namely, Eye Plantain).
The terms of this Direction Authority are relevantly as follows (emphasis added):
“Keybridge …. hereby irrevocably AUTHORISES and DIRECTS the Liquidator [Mr Rathner] to direct the [Keybridge]secured creditor funds, otherwise paid by the Liquidator from time to time to [Keybridge] from Eye Plantain, to otherwise be advanced to … [the PR Group Companies] … so as to enable each of the Parties to meet the ongoing fees of Gideon Rathner and any and all expenses and disbursements incurred by him, including legal fees on a solicitor client basis.”
Mr Rathner can only rely on this authority to direct funds from the Eye Plantain liquidation to the PR Group Companies insofar as such funds are required to meet “fees” which are in fact due to Mr Rathner or “expenses and disbursements” which have in fact been “incurred by him”, as liquidator of the PR Group Companies.
There has been a dispute between Keybridge and Mr Rathner about whether fees were in fact properly owing to him, or expenses were properly incurred by him, as liquidator of the PR Group Companies. In circumstances where Mr Rathner has been appointed administrator of Keybridge, he is, in respect of any such issue, in a position of conflict. Counsel for Mr Rathner acknowledged in closing address that there were grounds for finding “an apprehension of bias, if not an actual bias” in respect of these matters:
“HIS HONOUR: Isn’t the issue that up until 10 February, the people who were deciding whether [Mr Rathner] had incurred fees and expenses [in the liquidation of the PR Group Companies] which he could claim on the Keybridge side would have been Mr Bolton, Mr Patton and others, and now it’s Mr Rathner?
[COUNSEL FOR MR RATHNER]: Yes, that is the issue, absolutely. If your Honour was here to consider the appropriateness of Mr Rathner as the administrator, if this was an application to replace him, which it’s not - … your Honour could well say there’s an apprehension of bias, if not an actual bias, in determining that, and that could be carved out to a special purpose administrator. …”
As Counsel for Mr Rathner noted, the present application is not an application to replace Mr Rathner as administrator, or to appoint a special purpose administrator in respect of one or more matters, but is instead an application to end the administration on the basis that the Board of Keybridge appointed Mr Rathner for an improper purpose. The matters going to Mr Rathner’s independence are raised in aid of that contention, with the Plaintiffs submitting, in substance, that having regard to those matters (which were known to Mr Bolton and Mr Patton), the Court would infer that Mr Rathner’s appointment was for an improper purpose. I return to this submission below, after dealing with the other issues raised in respect of Mr Rathner’s independence.
The second of those matters concerns the claim for misleading conduct which had been asserted by Keybridge against Mr Rathner in the Winding Up Proceeding. As set out above, Keybridge alleged in that proceeding that Mr Rathner had misrepresented the prospects of success in the PRFG Proceedings. Those proceedings extended over five years, and were dismissed shortly after the hearing commenced, on the basis of an exclusion in the relevant insurance policy. Delany J expressed the view that, if Mr Rathner had sought advice on this issue prior to commencing the PRFG Proceedings, those proceedings would never have been brought.
In his affidavit in this proceeding, Mr Patton referred to his previous assertion of a claim against Mr Rathner in the Winding Up Proceeding, and deposed as follows:
“In relation to my comment about an offsetting claim against Lowe Lippman for misleading and deceptive conduct in respect of the prospects of the proceeding which the Company funded, this comment should have been directed to the lawyers who advised Mr Rathner and not Lowe Lippman.”
As noted above, Delany J had commented in the PRFG Proceedings that no party had criticised the plaintiffs’ lawyers for failing to advise on this issue, and that this was understandable given that “the plaintiffs’ legal representation chopped and changed and lacked continuity” (see paragraph [286] above).
When Mr Bolton first asserted that Mr Rathner had provided “incorrect” advice in relation to the PRFG Proceedings, Mr Rathner responded as follows in an email to Mr Bolton dated 30 October 2024, which was copied to Mr Patton and to Keybridge’s in-house counsel, Mr Loizou:
“I did not provide the advices on the claims. [Keybridge] retained the various law firms that provided the advices. The outcome of the claims may have been different had they been appropriately funded and had there not been 5 different law firms appointed over the period.”
Mr Rathner thereby contended, in response to the claim asserted against him, that criticism should either be directed at the lawyers who had been retained in the PRFG Proceedings or at Keybridge, who had not properly funded the proceedings (leading to the legal representation chopping and changing and lacking continuity).
It can be inferred that Keybridge’s management and, in particular, Mr Patton did not accept this response given that, after it was received, Mr Patton proceeded to file two affidavits in the Winding Up Proceeding which asserted that Mr Rathner had engaged in misleading conduct.
In cross-examination, Mr Bolton gave evidence to the effect that, prior to Mr Rathner’s appointment, Mr Bolton had withdrawn the claim for misleading conduct:
“Q. When did you withdraw it?
A. I had a chat with Mr Rathner on 5 February and I believe we sort of acknowledged that it was a bit of bluster from both of us, this particular matter, and nothing turned on it and it went away.
Q. So is this right; on 5 February you had a conversation with Mr Rathner, the result of which was a mutual understanding that you did not assert that Keybridge had a cross-claim against his firm?
A. And, and that he did not assert that he had a right to an invoice from us. To us.
Q: You came to that understanding with Mr Rathner on the 5th, did you?
A: It, it was, it was more of a, a clearing the air, if you like, because I hadn’t spoken to him since these tense, tense communications
Q: Did you inform your fellow directors of that?
A: No, no, I don’t believe so”
I am not satisfied that any such discussion occurred on 5 February 2025. If Mr Bolton had withdrawn the cross claim, it is likely that he would have indicated this to Mr Patton (who had sworn the affidavit asserting such a claim) when having discussions with him regarding the appointment of Mr Rathner. However, he did not do so. Further, Mr Bolton did not make any record that he had withdrawn the claim.
The claim had been asserted against Mr Rathner as recently as November 2024. In early February 2025, Mr Rathner was turning his mind to the potential appointment as administrator of Keybridge and, in particular, issues of independence. If Mr Bolton had withdrawn this claim at the time that Mr Rathner had considered those issues and was seeking advice regarding his prior relationships with Keybridge, this would likely have been a significant matter for him. However, Mr Rathner gave evidence that it was not until 19 February 2025, at a meeting with Mr Patton and Mr Bolton (discussed further below), that Mr Rathner was told that the claim for misleading conduct was no longer being asserted against him:
“Q. What does that note [‘Affidavit re misleading and deceptive conduct. Patton affidavit. Response LL invoice’] record being said? Or with the assistance of that note, what was said about that?
A. At that meeting it was confirmed that Mr Patton no longer asserted the misleading and deceptive conduct and that the advice was given by the solicitors and not by me.
Q. So that was the first time that assertion was made to your knowledge, is that correct?
A. That is the first time it was mentioned to me, yes.”
“… now if again your Honour was here determining the appropriateness of Mr Rathner being the administrator or another administrator, then that would be something that could be separated because the determination of whether such a claim should be brought is something in respect of which Mr Rathner would no doubt at least have an issue in determining.”
The third matter raised in respect of Mr Rathner’s independence concerns the loan referred to in the financial statements of Yowie and Keybridge, being a loan in the amount of $1.5m made by Yowie to PRFG in respect of the PRFG Proceedings, with Keybridge having indemnified Yowie for any loss in respect of that loan (see paragraphs [287]-[288] above). In cross-examination, Mr Rathner stated that these funds were provided to meet the order to provide security for costs in the PRFG Proceedings. He further stated that he did not believe “the funds were advanced to me personally” and was “not sure whether it was a loan to PRFG or whether it was just payment into court pursuant to the order made”.
The Plaintiffs indicated, in closing submissions, that they did not assert that Mr Rathner was personally liable in respect of any such loan, adding:
“The point is that it was a loan to the PRFG liquidation, not a loan to Keybridge, and so the question is one of Mr Rathner’s position of conflict because he’s liquidator of that company.”
Mr Bolton gave evidence in cross-examination that the financial statements of each of Yowie and Keybridge were incorrect, and that Yowie did not advance this sum to PRFG. He did not offer any explanation for how this error had come about in the sets of accounts of two public companies, which were audited by different firms, and approved by their directors. Further, there was evidence that the relevant loan appears in Yowie’s general ledger as a “Loan to PRFG” in the amount of $1,500,707.
Section 1305(1) of the Act provides that a book kept by a body corporate under a requirement of the Act “is admissible in evidence in any proceeding and is prima facie evidence of any matter stated or recorded in the book”. In Australian Karting Association Ltd v Karting (New South Wales) Incorporated [2022] NSWCA 188 at [129], Gleeson JA (with whom Meagher JA and Simpson AJA agreed) said that:
“Section 1305 has the effect that the statement of a matter in a book kept by a company is sufficient to prove that matter in civil proceedings, unless other evidence convinces the court to the contrary on the balance of probabilities …”
I do not consider that Mr Bolton’s assertion in cross-examination of an error, unsupported by any documentary evidence, is sufficient to establish, on the balance of probabilities, that the entries in the audited accounts of Yowie and Keybridge concerning the loan to PRFG are incorrect.
Counsel for Mr Rathner noted that there had been no reference to this loan in the Plaintiffs’ opening written submissions in chief or in reply, and in those circumstances he had been unable to take steps such as, for example, issuing a subpoena to Yowie to produce any documents relating to the loan. I accept that there is some force in this criticism. In any case, I do not consider that whether or not this loan was made to PRFG adds significantly to the other matters concerning the PR Group Companies which have been addressed above, and which do give rise to issues as to Mr Rathner’s independence.
The Plaintiffs raised several matters regarding Mr Rathner’s post-appointment conduct, which they also relied upon in contending that the Court should infer an improper purpose in respect of his appointment.
First, Mr Rathner deposed in an affidavit filed on 23 February 2025 in this proceeding that he “propose[d] to realise assets to a sum not exceeding $1 million” to fund the administration, with any sum not used being available to creditors. The Plaintiffs submitted that this reflected a “fundamental misapprehension of the role of the administrator”, and that the Court should infer that this proposed course of conduct reflected discussions which Mr Rathner had with Mr Bolton prior to his appointment. As outlined below, Mr Rathner gave evidence that he did have some discussion with Mr Bolton regarding the prospect of realising assets to pay pre-appointment creditors, but not “in specific detail about each item of asset”.
Secondly, Mr Rathner agreed in cross-examination that he had not taken any steps in relation to Yowie, other than considering whether to sell the Yowie shares. The Plaintiffs submitted that it followed that he had taken no steps to convene a meeting to replace the directors of Yowie, in order to ensure that it is being dealt with independently, and had made no requests for undertakings that the assets of Yowie will be preserved or that payments will only be made in the ordinary course of business.
Thirdly, the Plaintiffs submitted that Mr Rathner, rather than taking a position of neutrality in respect of the issues arising in this proceeding (other than those in respect of his own conduct), had assisted the Director Defendants in their defence of the proceedings. In particular, the Plaintiffs referred to the following matters.
On 19 February 2025, there was a telephone conference which was attended by Mr Rathner, Mr Patton, Mr Bolton, Mr Loizou, Mr Abraham and Mr Broadfoot. Mr Loizou is Keybridge’s in-house counsel and Mr Abraham is the solicitor for Mr Rathner and Keybridge in this proceeding. Although Mr Broadfoot appeared at the hearing on 5-7 March 2025 for the Director Defendants, he had, on the day of this teleconference, appeared for Keybridge in a directions hearing in this proceeding. At this meeting, there was discussion regarding which of the defendants should respond to which of the issues in this proceeding, and regarding what evidence would need to be prepared in response to those issues. For example, there was reference to the obtaining of an affidavit from “Yowie re calling loan w/out influence Patton/Bolton”. This was not an issue in respect of which Mr Rathner had any interest. (An unredacted version of the note was produced at the hearing after Mr Rathner conceded that he did not have any interest in any of the issues raised other than those concerning his own conduct, and the Director Defendants conceded that they did not have any interest in the issues relating to Mr Rathner’s own conduct, such that there was no common interest privilege in respect of the contents of the note.)
For the reasons given above, I accept the Plaintiffs’ submissions that Mr Rathner was in a position of conflict, having regard to his prior dealings with Keybridge as liquidator of the PR Group Companies; and that Mr Bolton and Mr Patton must have known that was the case at the time of his appointment. Further, I accept the Plaintiffs’ submission that Mr Rathner assisted Mr Bolton and Mr Patton in their defence of the proceedings, at least prior to the point in time when they obtained legal representation.
However, the critical question for present purposes is whether, having regard to those matters, the Court should infer that Mr Bolton and Mr Patton were actuated by an improper purpose in proposing Mr Rathner for appointment as administrator.
In opening written submissions in reply, the Plaintiffs submitted that Mr Rather’s “post-appointment conduct permits inferences to be drawn about what he told the [Incumbent] Directors as to how he intended to approach the administration”, which “in turn supports an inference that the appointment was not for a proper purpose”. However, the Plaintiffs did not identify what particular inferences should be drawn regarding the content of any such discussions.
Similarly, in closing address, Senior Counsel for the Plaintiffs submitted as follows:
“We advance a case that the three of them, that is Mr Rathner, Mr Bolton and Mr Patton, acted in concert in the conduct of the litigation and the administration. I put that clearly to Mr Rathner in cross-examination. From that you can infer an arrangement or understanding, all of which is relevant only because what it demonstrates is that Mr Bolton and Mr Patton were actuated by an improper purpose and the fact that is sought to be established is what you can infer about what Mr Bolton and Mr Patton expected from Mr Rathner, expected an administration by Mr Rathner, to involve. That is all squarely raised.”
However, there was no identification of the particular matters in respect of which an “understanding” was reached, or what Mr Bolton and Mr Patton, as a result of pre-appointment discussions, “expected an administration by Mr Rathner to involve”.
In cross-examination, Mr Rathner gave the following evidence of his discussions with Mr Bolton regarding the conduct of the administration:
“Q. Did he tell you he wanted to talk to you about how you would run the administration if you were appointed?
A. Only in very general terms.
Q: What were the very general terms?
A. The company was cash poor, but asset rich and therefore the administrator - and so the purpose of the administration would create a moratorium on those claims so that the company could sort out its affairs to raise the funds in the realisation of assets so the creditors could be paid. That was the broad view taken of how - of, of what the - of the reason for going into administration and any subsequent outcome.
“Q. Did Mr Patton or Mr Bolton tell you that one of the things they thought you should do or should consider is realising assets to pay pre-appointment creditors?
A. No.
Q. Did you have any discussion with Mr Bolton or Mr Patton prior to appointment, your appointment, about the prospect of you realising assets to pay pre-appointment creditors?
A. Yes.
Q. Did you discuss with Mr Bolton or Mr Patton prior to your appointment what assets might arise for sale as part of your administration?
A. Not in specific detail about each item of asset, no.
Q. Did they talk in particular about Keybridge's shares in Yowie?
A. No.
Q. Did they talk in particular about Keybridge's shares in Benjamin Hornigold Ltd?
A. No.”
“Q. When you met with Mr Rathner on 5 February, did you have a conversation with him in which you said that you wanted him to set about - that if he was appointed administrator, you wanted him to set about realising assets?
A. No.
“Q. Did you discuss with Mr Rathner whether putting the company into a friendly administration would provide a basis to maximise your control of the company or its assets?
A. No.
Q. Did you discuss with Mr Patton whether putting the company into a friendly administration would provide a basis to maximise your control of the company or its assets?
A. I did not.”
“Q. Yes. Did you discuss with Mr Bolton on 4 or 5 February whether putting the company into a friendly administration would provide a basis to maximise your control of the company or its assets?
A. No.”
It is difficult to discern, from the propositions put to Mr Rathner, Mr Bolton and Mr Patton in cross-examination set out above, what is alleged to have been the content of any “understanding” between them regarding the conduct of the administration (and in particular, the sale of assets), or what “expectations” Mr Bolton and Mr Patton are alleged to have held about those matters, let alone why it is said that any such (unspecified) “understanding” or “expectations” support “an inference that the appointment [of Mr Rathner] was not for a proper purpose”. The highest that the allegation appears to go is that there was some understanding or expectation that “putting the company into a friendly administration would provide a basis to maximise [Mr Bolton’s and Mr Patton’s] control of the company or its assets”. However, that bare proposition was denied by each of Mr Bolton and Mr Patton (and was not put to Mr Rathner), and there was no articulation (or exploration in cross-examination) of the respects in which the administration would be “friendly” or the way or manner in which a “friendly” administration would allow Mr Bolton and Mr Patton to “maximise” their “control” of Keybridge or its assets.
I have found that there were issues with respect to Mr Rathner’s independence at the time of his appointment, arising from his previous dealings with Keybridge in respect of the liquidation of the PR Group Companies, and that Mr Rathner did not, following his appointment and during the period when the Director Defendants were self-represented, adopt a position of neutrality in respect of the issues arising in these proceedings which did not concern his own conduct. However, I do not consider that those matters provide a sufficient basis to conclude that Mr Rathner and Mr Bolton came, prior to his appointment, to some (unspecified) “understanding” regarding the sale of assets, with the result that Mr Bolton and Mr Patton held (unspecified) “expectations” about how an administration by Mr Rathner would proceed, such that it may be inferred that they were actuated by an improper purpose in proposing Mr Rathner for appointment and that, but for this improper purpose, Mr Rathner would not have been proposed, and therefore appointed, as administrator.
By reason of the findings I have made above in respect of Issues 1 to5, the position is as follows:
on 9 February 2025, the Board validly appointed Mr Rathner as voluntary administrator; and
on 10 February 2025, the shareholders of Keybridge passed resolutions at a general meeting called pursuant to s 249F of the Act which removed the Incumbent Directors (other than Mr Catalano) and appointed the Proposed Directors.
In that context, it is necessary to consider the final issue which arises for determination, namely, whether the Court should make an order pursuant to s 447A of the Act that the administration of Keybridge is to end with immediate effect.
Section 447A of the Act relevantly provides as follows:
(1) The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company.
(2) For example, if the Court is satisfied that the administration of a company should end:
(a) because the company is solvent; or
(b) because provisions of this Part are being abused; or
(c) for some other reason;
the Court may order under subsection (1) that the administration is to end.
While s 447A itself confers “plenary powers” on the Court “to do whatever it thinks is just in all the circumstances” (Cawthorn v Keira Constructions Pty Ltd (1994) 33 NSWLR 607 at 341), s 447A(2)(a) expressly provides that the Court has power to end the administration of a company if the Court is satisfied that the company is solvent: Intergen Energy Holdings (Australia) Pty Ltd, Re Intergen Energy Holdings (Australia) Pty Ltd [2017] FCA 445 at [28] (Gleeson J).
WAM submitted that the refinancing arrangement outlined in the Letter of Comfort is in the best interests of Keybridge, its creditors and its members, and is sufficient to restore Keybridge to solvency and end the administration under Part 5.3A of the Act.
In the Letter of Comfort, WAM referred to the Section 249F Meeting, and stated that it was giving the undertakings set out in the letter, subject to certain restrictions, “for the purpose of giving comfort to the Proposed Directors that [Keybridge] is not insolvent or likely to become insolvent”.
The undertakings in this letter were as follows:
“2.1 Subject to the restrictions in Section 3 of this Letter of Comfort, if at any time during the term of this Comfort Letter, the Company notifies WAM Active in writing (Request) that it requires an amount of equity or shareholder loans from WAM Active (Requested Amount) because it is unable or likely to be unable to pay a debt or liability of the Company from its own moneys, then WAM Active agrees to provide that Requested Amount in cash to the Company by way of, at WAM Active’s election, a secured or unsecured loan or equity amount within 15 Sydney business days of the Request.
2.2 The parties agree that the Company may Request WAM Active to provide a Requested Amount more than once during the term of this Comfort Letter.
2.3 This Letter of Comfort is binding on WAM Active upon delivery of this Letter of Comfort to the Company by email. It is not necessary for the Company to accept this Letter of Comfort in order for it to be binding on WAM Active, subject to the restrictions below.”
“3.1 The term of this Letter of Comfort is one month from the date hereof or such later date as WAM Active may notify the Company in writing.
3.2 This Letter of Comfort will only be binding on WAM Active if, and only if:
(a) Mr John Patton, Mr Nicholas Bolton and Mr Richard Dukes have been removed as directors of the Company;
(b) the Proposed Directors are directors of Keybridge (New Directors); and
(c) the New Directors comprise a majority of the Board of the Company.
3.3 The Letter of Comfort:
(a) will cease to be binding on WAM Active if the New Directors cease to comprise a majority of the Board of the Company; and
(b) is not binding on WAM Active if:
(i) the Company is placed or remains under any insolvency administration, including a voluntary administration under Part 5.3 of the Corporations Act; and/or
(ii) either or both of Mr Nicholas Bolton and Mr John Patton are directors of the Company at any time.
3.4 The Letter of Comfort is not binding on WAM Active if a Request is in relation to a request or demand from Mr John Patton, Mr Nicholas Bolton and/or Mr Richard Dukes in connection with costs incurred or expected to be incurred by any or all of them, including in any of them defending ‘Relevant Proceedings’ as contemplated under clause 3.3 or clause 3.5 of the Directors Deed between the Company and Mr Bolton signed on or around 28 December 2011, or any comparable document or agreement between the Company and any or all of Mr John Patton, Mr Nicholas Bolton and/or Mr Richard Dukes.
3.5 Any amount provided to the Company must only be used to pay the debt or liability the subject of the Request.
3.6 If, at any time, any provision of this agreement is or becomes illegal, invalid or unenforceable in any respect under any law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions nor the legality, validity or enforceability of such provision in any other respect or under the law of any other jurisdiction will be affected or impaired in any way.”
The Letter of Comfort was expressed to be governed by the laws of New South Wales and was executed as a deed by WAM.
The Director Defendants submitted that “it should be for the administrator to determine whether the letter of comfort is of any utility or not”.
For his part, Mr Rathner stated in opening written submissions that the Letter of Comfort “in fact provides no comfort of solvency”, in particular because the “terms of any advance are not provided”.
Subsequently, in the course of the hearing, WAM provided a document headed “Keybridge Bridge Funding – Term Sheet”, which was dated 6 March 2025. The Term Sheet was signed by Mr Hamilton as Company Secretary of WAM and was expressed to remain open for acceptance by Keybridge until 5.00pm on the fifth business day following the determination of these proceedings.
The Term Sheet states that the purpose of the facility is to “provide [Keybridge] with bridge funding pending finalisation of a capital raising”. The term of the facility is the earlier of 30 June 2025 and the close of any capital raising. The conditions precedent include:
Mr Bolton and Mr Patton ceasing to be directors of Keybridge and of any entity that is a subsidiary “including, for the avoidance of doubt, Yowie”;
the Proposed Directors comprising a majority of the directors of Keybridge; and
Keybridge, following the execution of the Term Sheet, issuing an ASX announcement proposing that it intends to undertake a pro-rata rights issue or such other capital raising reasonably acceptable to WAM.
After Mr Rathner had the opportunity to review this Term Sheet, Counsel for Mr Rathner put his client’s position as follows:
“… having seen this term sheet for the first time last night, Mr Rathner says on the assumption that WAM can satisfy your Honour that they can meet creditor's claims, that would address concerns as to the continuation of the administration.
…
Mr Rathner only says, having seen that letter, if WAM can satisfy your Honour as to their capacity to pay creditor's claims, then that is the sort of offer he could document with WAM…”
That is, Mr Rathner has formed the view that, subject to there being material to establish that WAM has the ability to meet creditors’ claims, the facility in the Term Sheet would, if documented, provide a basis for bringing the administration to an end.
Because this query regarding WAM’s capacity to pay creditor’s claims was raised only in closing address, it was not addressed in evidence.
One further issue which I raised with the parties concerned the condition precedent regarding the identity of the directors.
On the findings I have made, Mr Patton, Mr Bolton and Mr Dukes ceased to be directors of Keybridge on 10 February 2025, and each of the Proposed Directors was appointed a director at that time.
However, there is an unresolved issue as to the status or significance of the resolutions put to the Spill Meeting on 27 February 2025. (Significantly, there is no issue raised on the Originating Process concerning the Spill Meeting.)
At the Spill Meeting, resolutions were put for the “re-election” of, relevantly, Mr Patton and Mr Catalano, which were announced as having been passed. The reason that the resolutions referred to the “re-election” of Mr Patton and Mr Catalano was that, as a result of the spill resolution having been passed, each of them was to “cease to hold office immediately before the end of the spill meeting”: s 250V(1) and s 250W(9) of the Act.
The resolution which was put at the Spill Meeting in relation to Mr Patton was in the following terms:
“That Mr John Patton, who will cease to hold office as a director of the Company immediately before the end of this general meeting pursuant to section 250V(1) of the Corporations Act 2001 (Cth) (‘Corporations Act') being eligible, be re-elected as a director of the Company with effect from the end of the meeting.”
As set out above, this resolution was put forward on the premise (which I have found to be incorrect) that Mr Patton remained a director of Keybridge at the time of the commencement of the Spill Meeting, and only ceased to hold office “immediately before the end of this general meeting”.
I was not provided with any submissions regarding the significance of the resolution put to, and passed at, the Spill Meeting for the “re-election” of Mr Patton on the assumption that Mr Patton had previously been removed as a director at the Section 249F Meeting. WAM raised a number of issues regarding the conduct of the Spill Meeting by Mr Bolton (including his unilateral decision as chairperson to exclude votes cast by WAM “subject to WAM having a right or an interested member having a right to get an order of a Court that would cause those proxies to be counted”). However, as I have noted, there was no relief sought in respect of the Spill Meeting and those matters were not fully explored in evidence or submissions.
The Plaintiffs submitted that that the appropriate course was either for the Court to conclude that the Director Defendants have not established that Mr Patton is a director (and therefore have not established that the conditions precedent of the bridging facility are not satisfied), having regard to the issues raised with respect to the Spill Meeting; or alternatively, “if the Court would otherwise accept the letter of comfort, but has concerns about whether or not Mr Patton is being on the board, the Court should do no more than say that and give WAM an opportunity to address it”. In respect of this latter course, the Plaintiffs submitted that:
“Fundamentally, if that were the only concern with the letter of comfort, it would be undesirable for the company to remain in external administration if a letter of comfort can be given that preserves the solvency of the company”.
The difficulty with the first proposed course is that a finding that the Director Defendants had not established that the conditions precedent are not satisfied does not finally determine any controversy as to the current membership of the board (if there is one), and therefore does not determine any controversy as to whether the condition precedent in respect of the composition of the Board has been satisfied (or waived). As matters presently stand, it is unclear even whether Mr Patton advances any contention to the effect that, following his removal as a director at the Section 249F Meeting, he was re-elected as a director at the Spill Meeting, or the basis on which such a contention is advanced.
For those reasons, I consider that the better course is the alternative that has been proposed.
I am satisfied that, subject to the outstanding issues in respect of the bridging facility being resolved (namely, the issue identified by Mr Rathner regarding WAM’s ability to meet creditors’ claims and any issue regarding satisfaction of the condition precedent regarding the composition of the board), the facility outlined in the Term Sheet would provide a basis to conclude that Keybridge is solvent and therefore a basis to conclude that the administration should be brought to an end.
In those circumstances, I will stand over the proceedings for a short period. It is in the best interests of creditors and members that Mr Rathner and WAM have an opportunity to communicate regarding the outstanding issues concerning the Term Sheet, given that, if those issues are resolved, the bridging facility proposed in the Term Sheet would provide the means to restore the solvency of the Company.
If following this process there is an extant issue about WAM’s ability to meet creditors’ claims, or about the satisfaction of the conditions precedent of the facility, any such dispute can determined by the Court. The remaining relief sought in the Originating Process, including the application for orders ending the administration, can also be determined at that time.
For the reasons given above, I have determined that the purported adjournment of the Section 249F Meeting was invalid and of no effect, and that the meeting continued following the purported adjournment, with the resolutions being put to shareholders, and with shareholders voting in favour of each of the resolutions to remove the Incumbent Directors (other than the resolution to remove Mr Catalano) and to appoint the Proposed Directors. I will make declarations to this effect.
I have rejected WAM’s contentions that the appointment of Mr Rathner was for an improper purpose. However, I have concluded that, subject to the specific issues identified above, the bridging facility which is outlined in the Term Sheet would provide a basis to conclude that Keybridge is solvent and therefore a basis to conclude that the administration should be brought to an end. I will stand over the proceedings for a short period to enable discussions to occur in relation to those outstanding issues. When the matter is next in Court, I will make orders to deal with the balance of the relief sought or otherwise will make directions in respect of any remaining dispute, including in relation to costs.
For those reasons, I make the following orders:
Declare that:
(a) on 10 February 2025 at 4:30pm, Keybridge validly held a meeting of its members convened in accordance with s 249F of the Act; (b) at the Section 249F Meeting, the members of Keybridge resolved that Mr Bolton, Mr Patton and Mr Dukes be removed as directors of Keybridge and that Mr Wilson, Mr Hamilton, Mr McCathie and Mr Ravell be appointed as directors of Keybridge; and (c) following the Meeting on 10 February 2025, the directors of Keybridge were:
(i) Mr Catalano; (ii) Mr Wilson; (iii) Mr Hamilton; (iv) Mr McCathie; and (v) Mr Ravell
********
(1994) 33 NSWLR 607
(2003) 214 CLR 118
(1998) 88 FCR 218
(1987) 162 CLR 285
(1962) 3 FLR 171
(2009) 74 NSWLR 673
On 12 February 2025, WAM sent a letter addressed to the directors of Keybridge which was headed “Comfort letter with respect to the debts and liabilities of the Company” (Letter of Comfort). In the Letter of Comfort, WAM gave undertakings that, subject to the conditions set out in that letter, if Keybridge requested an amount of equity or shareholder loans from WAM because it was unable or likely to be unable to pay a debt or liability from its own moneys, WAM would provide the requested amount in cash within 15 business days of the request. The conditions, which are discussed further below, included that the Incumbent Directors (other than Mr Catalano) had been removed as directors, and the Proposed Directors had been appointed as directors.
This proceeding was commenced by WAM on 11 February 2025, the day following the Section 249F Meeting. WAM seeks declarations that, as a result of the resolutions passed at the Section 249F Meeting, the Incumbent Directors (other than Mr Catalano) were removed and the Proposed Directors were appointed. WAM also seeks an order, pursuant to s 447A or s 447C of the Act, that the purported appointment of Mr Rathner as voluntary administrator of Keybridge was void, invalid and of no effect, or alternatively an order that, pursuant to s 447A, the administration of Keybridge is to end with immediate effect. In addition, WAM seeks an order that each of Mr Patton, Mr Bolton and Mr Dukes indemnify Keybridge for the costs, expenses and remuneration of Mr Rathner in his role or purported role as administrator of Keybridge.
Each of Mr Catalano and Mr Ravell filed a submitting appearance.
The Plaintiffs served a document headed “Plaintiffs’ issues or contentions”, which identified the propositions which they sought to establish on this application, and which provides a useful framework for determining the dispute. Those propositions fall into two categories, namely, propositions relating to the “purported adjournment” of the Section 249 Meeting and propositions relating to the “purported appointment” of Mr Rathner as voluntary administrator, as follows:
the Court would likely have found that Keybridge had failed to comply with s 173 of the Act as to providing a copy of its members' register, in circumstances where Mr Bolton did not have a basis for refusing or delaying compliance with that section; and
the Court would also likely have found, and Keybridge would likely have been obliged to concede, that Keybridge was required to call a spill meeting (having regard to the amended voting result announced to the ASX): In the matter of Keybridge Capital Limited [2025] NSWSC 8 at [8].
On 19 December 2024, WAM issued a notice of general meeting of Keybridge shareholders under s 249F of the Act, to be held at 10.00am on 10 February 2025 (Section 249F Notice). The notice stated that the business of the Section 249F Meeting was to consider and, if thought fit, to pass resolutions to remove each of the Incumbent Directors and to appoint each of the Proposed Directors.
The Section 249F Notice specified that proxies must be received by no later than 5.00pm on Thursday, 6 February 2025. The Explanatory Memorandum accompanying the Section 249F Notice identified the reasons why WAM had called the Section 249F Meeting, including WAM’s concerns regarding the transactions which are the subject of the derivative suit.
On 24 December 2024, Keybridge issued an announcement to the ASX, which referred to the Section 249F Notice and stated that: “Keybridge continues to be disappointed in WAM Active’s ongoing conduct to frustrate the operation of the Company for what appear to be uncommercial purposes.”
It was common ground that such authorities were of limited assistance in determining the issue arising in the present case. Ultimately, the task for the Court is to interpret the wording of rule 7.6(f), which is distinct from the wording adopted in those other cases.
A corporate constitution has the effect of a contract between the company and each of its members, the company and each director and secretary, as well as the members amongst themselves: s 140(1) of the Act. In HNA Irish Nominee Ltd v Kinghorn [2010] FCAFC 57 at [42], Keane CJ, Jacobson and Rares JJ observed that:
As set out in paragraph [98] above, the only matters which were identified by Mr Patton, when seeking Mr Broadfoot’s advice on 7 February 2025 regarding the adjournment of the Section 249F Meeting on the basis of his “concerns that shareholders were not properly informed regarding some material matters”, were the dispute regarding ACM and WAM’s change in position in respect of Mr Catalano.
As Mr Patton acknowledged, and as he told the shareholders and Mr Broadfoot, the dispute with Mr Catalano regarding ACM had been ongoing for almost a year prior to the Section 249F Meeting (being referred to in the Monthly NTA Statements issued since March 2024). Keybridge and Mr Patton had not seen any need to make any further disclosure to shareholders about this dispute:
prior to, or in the course of, the 2024 AGM on 29 November 2024 (which Mr Patton chaired), where investors voted on the spill resolution; or
in the Explanatory Statement issued on 3 January 2025 in relation to the Spill Meeting (including in relation to the resolution to re-elect Mr Catalano); or
in the ASX announcement and replacement notice issued by Keybridge on 14 January 2025 in relation to the Section 249F Meeting (including in relation to the resolution to remove Mr Catalano).
It must be inferred that on each of those occasions, the directors of Keybridge (including Mr Patton) formed the view that disclosure of the dispute with Mr Catalano concerning ACM was not material to the decision of shareholders as to whether to vote for the removal or re-election of Mr Catalano as a director of Keybridge.
It is telling that the first time that Mr Patton expressed any concern that shareholders needed to know more about the dispute with Mr Catalano regarding ACM was following Mr Catalano’s indication that he would be voting with WAM to remove the other Incumbent Directors and to appoint the Proposed Directors.
That timing supports an inference that the issue was raised, not out of a genuine concern that shareholders needed to be informed of the ACM dispute, but out of a concern that Mr Catalano had switched his support from the Incumbent Directors to the Proposed Directors. Significantly, when seeking to explain in cross-examination why, in circumstances where he had “chapter 6 concerns … since May last year … in relation to ACM”, he had not approached the Court or the Takeovers Panel about those matters, Mr Patton said:
Having regard to those matters, I am not satisfied that Mr Patton adjourned the Section 249F Meeting because of a genuine concern that there had been a potential contravention of s 606 and that this issue had to be raised with, and determined by, the Court or the Takeovers Panel before the meeting could proceed.
Senior Counsel for the Director Defendants submitted in oral address that it made “no sense why somebody in Mr Patton’s position would act improperly for the improper purposes in the way that [WAM] contends that he did”. Mr Patton is a non-executive director, and in his affidavit he expressed the view that the fees which he is paid for this role do not adequately compensate him for the amount of work and time commitment involved in the role. Further he gave evidence that once the ACM dispute is resolved, “given all the time and effort I have personally expended on this matter to date, I am happy to stand aside as a non-executive director of the Company”.
I accept that, in adjourning the Section 249F Meeting, Mr Patton was not acting for his own financial gain. However, it does not follow that, because he was not acting out of financial self-interest, he was acting for a proper purpose. As outlined above, where a meeting of shareholders is duly called so as to allow members to exercise their right to vote on resolutions to change the board, “it will be an abuse of the power of a chairman to remove the opportunity to exercise the right except for some good and proper reason calculated to promote the due exercise of the right in more suitable or constructive circumstances at a later time” (Drillsearch at [39]).
For the reasons given above, I am not satisfied that Mr Patton adjourned the Section 249F Meeting (and removed the opportunity for Keybridge’s members to vote on the resolutions to change the composition of the Board) for some good and proper reason calculated to promote the due exercise of that right in more suitable circumstances at a later time.
While Mr Patton may have had no great affection for his role as a director of Keybridge, he held strongly negative views regarding the conduct of WAM’s management in relation to Keybridge. For example:
following the issue of WAM’s Section 249F Notice, Keybridge made an announcement to the ASX on 24 December 2024 which was authorised by its Company Secretary (Mr Patton), and stated that: “Keybridge continues to be disappointed in WAM Active’s ongoing conduct to frustrate the operation of the Company for what appear to be uncommercial purposes”; and
in his affidavit of 16 January 2025 in the Capital Raising Restraint Proceeding, Mr Patton deposed that he held the view that “WAM has been (and is) misusing its power as a significant shareholder … to cause Keybridge to incur costs and otherwise frustrate Keybridge’s business activities”, and that this “course of conduct has been materially prejudicing Keybridge and its other shareholders”.
Having regard to the evidence summarised above, it is more likely that Mr Patton purported to exercise the adjournment power under rule 7.6(f) of the Constitution, not in order to promote the due exercise of the right of shareholders to remove and replace directors in more conducive or suitable circumstances at a later time, but because he considered that it would be more conducive to the interests of Keybridge if the members (and, in particular, WAM, Mr Catalano and their respective associates who, together, represented a majority of the members entitled to vote) were not allowed to exercise the right to remove the Incumbent Directors (other than Mr Catalano) and to appoint the Proposed Directors.
It follows that the power to adjourn was not exercised by Mr Patton for a proper purpose.
Senior Counsel for the Director Defendants submitted that, if the Court were to take the view that the adjournment of the Section 249F Meeting was “improper” because “it was for too long” or “for some other reason”, then “the appropriate course would be to hold the meeting again”.
However, if Mr Patton’s purported adjournment of the Section 249F Meeting was not (as I have found) within power, the consequence is that his purported adjournment did not in fact bring about an adjournment or termination of the Section 249F Meeting. In Wishart v Henneberry (1962) 3 FLR 171 at 174, Spicer CJ, Dunphey and Joske JJ said that:
On 4 February 2025, Mr Ranger sent an email to his fellow directors of Yowie, Mr Bolton and Mr Patton, stating that he was “reaching out as the only director independent to Keybridge to ask for your advice regarding the next steps for [Yowie], in particular how we deal with this Keybridge facility”. Mr Ranger outlined that Yowie was facing “serious capital challenges at the moment that, if not addressed, will cause significant harm to the business”. He proceeded to outline, in significant detail, Yowie’s cash needs, and stated that “unforeseen events have led to overdrafts and delayed payments bringing all of this into urgent attention”. Mr Ranger concluded his email as follows:
In the course of this teleconference, there had been discussion that in respect of the issue “Did Co appt valid” (that is, whether the appointment of Mr Rathner by Keybridge was valid), it would be necessary to obtain “Aff[idavits] from directors at meeting”. On the following day, Mr Abraham sent an email to Mr Catalano’s solicitor, which was copied to Mr Broadfoot. Mr Abraham stated that he acted for Keybridge and Mr Rathner, and “attach[ed] for [Mr Catalano’s] consideration a draft affidavit settled by Andrew Broadfoot KC”. The email continued: “Our client is concerned that, in circumstances where WAM has alleged that the Administrator was appointed for an improper purpose, any failure by directors to file affidavit material could lead his Honour drawing adverse inferences”. Mr Rathner said in cross-examination that this email was not sent on his instructions and was sent without his knowledge. I consider it unlikely that solicitors and counsel would take a step of preparing a draft affidavit, and incurring the costs involved in doing so, without instructions. It is likely that Mr Rathner agreed to this work being undertaken in the teleconference on the previous day (involving Mr Rathner, Mr Abrahams and Mr Broadfoot) where those present had discussed the need to prepare affidavits for the directors who were present at the board meeting, including Mr Catalano.
Mr Bolton also gave evidence that he was assisted in settling his affidavit by Mr Broadfoot, at a time when Mr Broadfoot was retained by Keybridge. Mr Rathner gave evidence that this work was also undertaken without his instructions. For the reasons given above, it is likely that such instructions were in fact given.
When Mr Rathner and Keybridge filed opening written submissions, they did not adopt a position of neutrality, such as an administrator should normally adopt on this type of application (see In the matter of Condor Blanco Mines Ltd (No. 2) [2016] NSWSC 1304 at [8]-[11] (Barrett AJA)). Instead, the submissions addressed the issues raised by the Plaintiffs concerning whether there was a proper purpose for the appointment of Mr Rathner and for the adjournment of the Section 249F Meeting. Counsel for Mr Rathner said that those written submissions “went no further” than advancing contentions to the effect that “on the issue of construction [the relevant rule of the Constitution] could be construed this way” and “[o]n the issue of improper purpose, there are documents that support the purpose”. In my view, the opening submissions did in fact go further than this. For example, on the issue of construction, Mr Rathner did not simply advance submissions as to how the rule could be construed, but as to how it should be construed, submitting that this “aspect of the Plaintiffs’ case should be dismissed”; and flagging an intention to bring an application under s 1322 of the Act “against the possibility that the Court finds in favour of the plaintiffs on the first issue [regarding construction]”.