In the matter of SNL Group Pty Ltd (in liq); Su v SNL Group Pty Ltd

CATCHWORDS : CORPORATIONS - Application to terminate winding up - whether debt the subject of the winding up should be paid into Court - EVIDENCE - whether evidence in relation to debt admissible - admissible on: (1) explanation of general background and circumstances leading to winding up - and (2) application to pay money into Court.

LEGISLATION CITED : Corporations Act 2001 (Cth) Companies Act 1961 (Qld)

Anderson v Palmer [2002] NSWSC 192 Brolrik Pty Ltd v Sambah Holdings Pty Limited (2001) 40 ACSR 361 CMA Corporation Ltd v SNL Group Pty Ltd [2009] NSWSC 1452 Deputy Commissioner of Taxation v Northview Developments Pty Ltd (in liq) [2005] FCA 1825 CASES CITED : Dubolo Pty Ltd (t/as Fender Signs) v Codrington Investment Corporation Pty Ltd (1998) 26 ACSR 723 Modena Imports Pty Ltd (in liq), In the matter of; Leveraged Capital Pty Ltd (R&M app) (in liq) v Modena Imports Pty Ltd (in liq) [2010] NSWSC 739 Owners Strata Plan 70294 v LNL Global Enterprises Pty Ltd and Ors (2006) 60 ACSR 646 Re Warbler Pty Ltd (1982) 6 ACLR 526 Von Risefer v Mainfreight International Pty Ltd (2009) 73 ACSR 427

Wen Wu Su (First Applicant) PARTIES : Bei Lu (Second Applicant) SNL Group Pty Ltd (ACN 103 679 527) (in liq) (Respondent) CMA Corporation Limited / CMA Peakmore Pte Limited

C Harris SC (Applicants) COUNSEL : JM White / J English (Respondent) D A McLure (CMA Corporation Limited / CMA Peakmore Pte Limited)

Colin Biggers & Paisley (Applicants) SOLICITORS : Kemp Strang (Respondent) Norton White (CMA Corporation Limited / CMA Peakmore Pte Limited)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

2009/289722 IN THE MATTER OF SNL GROUP PTY LTD (IN LIQUIDATION); WEN WU SU & ANOR v SNL GROUP PTY LTD (IN LIQ)

JUDGMENT 1 This is an application under s 482 of the Corporations Act 2001 (Cth) (the Act) for an order terminating the winding up of SNL Group Pty Ltd (in liq) (the Company) brought by the former directors of the Company Wen Wu Su and Bei Lu (the Applicants). The Company was placed into liquidation by an order made by Austin J on 9 December 2009. Company's Background 2 The Company was incorporated on 11 February 2003 and conducted a business principally in the sourcing of iron ore in the Asia Pacific region for export to China (the iron ore business). The Company has "close ties" with a Chinese entity known as Guangxi Xianlin (GX) by which expression I understand is meant that it is owned by the First Applicant's brother. The iron ore business involved the Company purchasing and arranging for the cartage of iron ore to GX. The Company received moneys from time to time from GX to purchase the iron ore and on other occasions the Company purchased the iron ore for and on behalf of GX and was subsequently reimbursed with a 2% commission payment from GX. 3 The Company is the registered proprietor of a commercial property at Lakemba in Sydney (the Property) valued at approximately $8.8 million as at 23 September 2009. The Property is the subject of two leases: one for part of the first floor to the Commonwealth of Australia (referred to as the CentreLink Lease); and the other for the ground floor to the New South Wales State Property Authority (SPA) (referred to as the DOCS Lease). This has been referred to in the evidence as the Company's "investment business".

4 The Company established a commercial relationship with CMA Peakmore Pte Limited (CMAP) in May 2008. CMAP is a wholly owned subsidiary of CMA Corporation Limited (CMA), a publicly listed company that describes itself as a "global metals recycling group". CMAP is a corporation registered in Singapore where it operates a steel business. The contracts between the Company and CMAP that are in evidence do not disclose the detail of the working arrangements between the parties. However CMA claims that it or its agent CMAP advanced money to third parties on behalf of the Company for the purchase by the Company of iron ore and the Company was required to repay to CMA, or CMAP, any advances made. CMA claimed that the First Applicant would direct CMA to pay certain amounts to third parties in respect of the purchase price or transport or other costs relating to the purchase of iron ore by the Company; that CMA would direct CMAP to pay the amounts so directed; and that CMAP would make those payments. Relevantly in August 2008 CMAP made a claim on the Company for payment of US$525,888.38. Statutory Demand - CMA 5 On 9 April 2009 CMA served a Statutory Demand on the Company for US$525,888.38. The Company did not pay that amount. Consequently a presumption of insolvency arose under 459C(2)(a) of the Act against the Company. The Company instructed solicitors to make application to set aside the Statutory Demand. Although the application was apparently filed it was not served within the statutory period and winding up proceedings were commenced on 16 July 2009.

Winding Up Order - 9 December 2009 6 The Company retained the accounting firm RSM Bird Cameron Partners (Bird Cameron) to provide a report as to solvency. The solicitors retained by the Company failed to provide Bird Cameron with certain requested material in a timely fashion. This meant that on the date the matter was listed for hearing, the solvency report was deficient. Although the Company sought an adjournment, Austin J declined the application. 7 On 9 December 2009, Austin J concluded that the evidence established that the presumption of insolvency had arisen and the ground for winding up had been made out: CMA Corporation Ltd v SNL Group Pty Ltd [2009] NSWSC 1452. His Honour was satisfied that there was no basis for exercising a discretion to dismiss the winding up application and said at [15]: This is a case where the application is brought precisely in the circumstances that the policy underling Pt 5.4 of the Corporations Act envisages, namely, non-compliance with a statutory demand leading to a presumption of insolvency facilitating proof of the ground for winding up and casting the onus of proving solvency on the defendant. The fact that the statutory demand was made in US dollars does not, in my view, supply a sufficient basis for exercising the discretion under s 467, given the circumstances I have described in my earlier judgment on the application for an adjournment. No other plausible ground for exercising the discretion favourably to the defendant has been advanced. 8 Austin J ordered that the Company be wound up under s 459A of the Act and the liquidator, Quentin Olde of Taylor Woodings be appointed liquidator (the Liquidator). Liquidation 9 On 11 December 2009 the Applicants' solicitors wrote to the Liquidator claiming that the Company was solvent and that the directors were able to discharge all outstanding creditors, including CMA "under protest", the legal costs of the winding up proceedings on a party/party basis and the Liquidator's fees and expenses. 10 Since his appointment the Liquidator has: obtained and considered the books and records of the Company; prepared a report to creditors dated 15 January 2010; convened and held a meeting of creditors on 29 January 2010; liaised with the directors and purported creditors; and traded the investment business, but not the iron ore business, pending the outcome of the application presently before the Court.

11 The Centrelink Lease over the Property commenced on 10 January 2005 with an initial five-year term that expired on 9 January 2010, with an option to renew for a period of five years. The Commonwealth sought to exercise the option prior to the liquidation and the Liquidator has formed the view, on advice, that such exercise of the option was valid. The CentreLink Lease has been extended for a further five years from 10 January 2010 with a rental amount of $30,258.60 per month plus general outgoings. 12 The DOCS Lease commenced on 9 January 2005 for an initial six-year term which is scheduled to expire on 8 January 2011. The current rental is $36,134.89 per month plus general outgoings. On 22 June 2010 the SPA sought to exercise the first of its two options for a term of four years from 9 January 2011, which the Liquidator has recognised as a valid exercise of the option. 13 The Property is mortgaged to Suncorp-Metway Limited (Suncorp). The outstanding amount under that facility at the date of the Liquidator's appointment was $6,266,229. Since the liquidation of the Company, the directors have paid the mortgage payments personally but the Liquidator has been paying all outgoings in relation to the Property. 14 The Liquidator has collected the rental payments under the DOCS Lease and the CentreLink Lease and holds $405,844.06 on deposit in his bank account as at 5 July 2010. 15 The solicitors for CMA and CMAP commenced corresponding with the Liquidator on 13 January 2010 seeking payment of their costs of the winding up of $58,943.46, setting out a "reconciliation and explanation" of the claim for US$525,888.38 and seeking to prove that debt on behalf of either CMA or CMAP in the liquidation.

16 The Liquidator has not called for formal proofs of debt. However voting proofs of debt were requested for the sole purpose of the creditors voting at the creditors meeting. Both CMA and CMAP submitted a voting proof in the amount of US$525,888.38. The other entities that submitted voting proofs were the directors in the amount of $3,850,613 in respect of their loans to the Company; Suncorp in the amount of $6,481,099.33; and Bird Cameron in the amount of $11,000.

17 On 21 June 2010 the Company's previous solicitors who acted in relation to the Statutory Demand and in the winding up application wrote to the Liquidator's solicitors indicating that there are outstanding disbursements owing to counsel who appeared in the winding up application and to Bird Cameron in the amount of $26,180. That figure includes the $11,000 of Bird Cameron's fees referred to above. 18 The liquidator's interim remuneration of $72,712.50 was determined at the meeting of creditors on 29 January 2010. Application to Terminate Winding Up 19 On 26 February 2010 the Applicants filed the present application for an order that the winding up be terminated. 20 The hearing took place on 7 and 9 July 2010 when Mr C Harris SC appeared for the Applicants, Mr JM White, of counsel, appeared for the Respondent/Liquidator on 7 July 2009, Ms J English, of counsel, appeared for the Liquidator on 9 July 2010 and Mr DA McLure, of counsel, appeared for CMA Corporation Limited and, with leave, CMAP. Applicable Principles 21 Section 482 of the Act provides relevantly: (1) At any time during the winding up of a company, the Court may, on application, make an order staying the winding up either indefinitely or for a limited time or terminating the winding up on a day specified in the order.

22 The applicable principles in determining whether the liquidation of a company ought be terminated were set out in Re Warbler Pty Ltd (1982) 6 ACLR 526 at 533 as having emerged from the various authorities as analysed by Master Lee QC in that case (the List). Re Warbler was a case in which there was an application under s 243 of the Companies Act 1961 (Qld), not materially different from s 482(1) of the Act, to stay a winding up order. The List has often been cited: Anderson v Palmer [2002] NSWSC 192 at [5] per Barrett J; Deputy Commissioner of Taxation v Northview Developments Pty Ltd (in liq) [2005] FCA 1825 at [3] per Gyles J; Von Risefer v Mainfreight International Pty Ltd (2009) 73 ACSR 427 at 438; [2009] VSCA 179. The matters in the List are to be treated as helpful guidelines, not rigid principles: Dubolo Pty Ltd (t/as Fender Signs) v Codrington Investment Corporation Pty Ltd (1998) 26 ACSR 723 at 725 per Santow J. 23 In Modena Imports Pty Ltd (in liq), In the matter of; Leveraged Capital Pty Ltd (R&M app) (in liq) v Modena Imports Pty Ltd (in liq) [2010] NSWSC 739, at [13], Palmer J derived the following from the List as useful guidelines for consideration in an application under s 482 of the Act: - the applicant must make out a positive case for the favourable exercise of the Court's discretion; - the applicant must show the nature and extent of the creditors, and whether all debts have been discharged; - the attitude of creditors, contributories and the liquidator is a relevant consideration; - the applicant must show the current trading position and general solvency of the company; - the applicant must provide a full explanation of any non-compliance by the directors with their statutory duties; - the applicant must explain the general background and circumstances leading to the winding up order; - the applicant must show the nature of the company's business and whether the conduct of the company was in any way contrary to "commercial morality" or "the public interest".

24 Palmer J did not suggest that these considerations were listed in any order of importance, however, it is clear that in determining whether to terminate the winding up of a company, it is usual that the most significant matter for consideration is the solvency of the Company. The other considerations, such as the extent of the creditors, the status of the debts and the nature of the company's business will be taken into account in determining whether the company has returned to, or will be returned to solvency. Solvency 25 On 14 April 2010 BRI Ferrier provided a report in respect of the solvency of the Company (the Ferrier Report) which analysed the question of solvency as at 11 March 2010 and concluded as follows: Based on the analysis of the Company's balance sheet, as at 11 March 2010 the Company fails the balance sheet test for solvency, given there is a net current asset deficiency of $437,607.71 and a total net asset deficiency $2,384,592.97. The deficiency indicates that the Company does not have sufficient current assets to discharge its current liabilities, indicating the Company has insufficient working capital to satisfy its debts as and when they fall due. However, as discussed previously the directors of the Company have taken steps to rectify the deficiency as follows: - Even though the directors' and related party loans are not due and payable at present, the directors have undertaken to capitalise their debts (to an amount equal to or greater than the balance sheet deficiency) to equity, thereby eliminating this liability from the balance sheet; and - Ms Bei Lu's affidavit indicates that the directors of the company have made a provision from their personal funds for the payment of all moneys claimed by CMA.

Should the directors advance funds to discharge the debt claimed by CMA, the Company will then satisfy the balance sheet test for solvency as there will be a net current asset surplus based on the directors' claims not being immediately due and payable.

Furthermore, the funds currently held by Mr Olde are sufficient to discharge the Official Liquidator's fees/costs to date and the Company's GST liability. The balance of funds can be applied towards CMA's debt to partially satisfy it. This will subsequently reduce the amount required from the directors to discharge CMA's debt. Based on the analysis of the Company's cash flow, the Company satisfies the test for solvency. As the iron ore consultancy business has now ceased, the income derived from the commercial property is more than sufficient to meet the Company's debts as and when they fall due, which primarily relate to the Lakemba property. In addition, the directors' strong personal financial position enables the directors to assist with the ongoing funding of the Company's cash flow should it be required.

In summary, I am of the opinion that the Company is solvent as at the date of writing this report. 26 The strong personal financial position of the Applicants referred to above in the Ferrier Report was not challenged. However Mr McLure did make a submission that there was no proper evidence before the Court as to the "creditworthiness" of the Applicants. I disagree with that submission. It is evidenced in part by their capacity to pay the mortgage payments of $404,607 to Suncorp in respect of the Property since the date of liquidation of the Company. This amount is presently characterised as a loan to the Company, in respect of which the Applicants, although originally suggesting an undertaking to subscribe for capital equivalent to the amount, have now proposed an order that such capitalisation occur within 7 days. This change in attitude recognises the concern that Barrett J expressed in respect of undertakings in this regard in Owners Strata Plan 70294 v LNL Global Enterprises Pty Ltd and Ors (2006) 60 ACSR 646 at 651. The Applicants have also proposed an order that the amount of their loans to the Company, as recorded in the Ferrier Report, be similarly capitalised within seven days. 27 It is not clear that if control of the Company were to be returned to the Applicants, the Company would intend to recommence the iron ore business. The Ferrier Report proceeds on the basis that the Company would only be operating the investment business, which having regard to the secure leases over the Property, would provide to the Company approximately $30,000 per month after payment of the mortgage to Suncorp. The Ferrier Report noted that the iron ore business was being carried on by a "director related entity" that has employed the Company's former employees, whose entitlements from the Company have been fully paid. 28 The balance sheet deficiency of $2,384,592.97, adjusted by the capitalisation of the directors' loans of $3,543,209 would return the Company to an estimated surplus of assets over liabilities of $1,158,616.03. With the additional capitalisation of the amount of the mortgage payments of $404,607, the surplus would increase to $1,563,223.03. 29 It is necessary to take into account the need to pay or make provision for: the Liquidator's estimated fees of $18,500 (additional to the interim amount of $72,712.50 already determined); CMA's costs of the winding up proceedings agreed at $58,943.56 plus interest of $24,435 totalling $83,378.56; the fees claimed by the Company's previous solicitors who acted in the winding-up proceedings of $26,180 (which includes the $11,000 claimed by Bird Cameron); the amount of $22,392 for the Deputy Commissioner of Taxation (DCT) in respect of a contingent GST liability; and the amount of $20,000 for the commercial agent of the Property David Abbott Commercial/Industrial Pty Limited; totalling $170,450.56. 30 The debt to CMA plus interest as at 9 July 2010 was $629,152.27. I am satisfied that the balance of $235,393.50 in the Liquidator's bank account (after payment of the above amounts and provision being made for the DCT of $170,450.56) should be made available for the payment of the CMA debt. The applicants have indicated that they would personally pay the balance of the debt, $393,758.77, preferably in Court. I will deal with the application to pay the amount of the CMA debt into Court below, however as to the personal payment of the balance of the CMA debt by the applicants, I am concerned that this will create a further debt of the Company to them. I am satisfied that the appropriate approach in all the circumstances of this case is to allow the balance in the Liquidator's bank account to be made available for the payment of the CMA debt and that the Applicants loan the Company the balance and capitalise that amount. The capitalisation of this loan will make the Company more secure in circumstances where it intends to litigate against both CMA/CMAP and its former solicitors and possibly Bird Cameron. 31 There was an application to pay the amounts due to the former solicitors into Court in the proposed proceedings against them. I am not satisfied that I should accede to such an application. The solicitors are not represented in this application. Nor is there any evidence that they would not be able to pay the Company any damages and/or costs if ordered to do so. That debt should be paid to the solicitors. It is a matter for the Company whether it advises the solicitors that it is paying that amount under protest. 32 I am satisfied that there should be an order terminating the winding up, subject to the matters referred to in the conclusion to this judgment. 33 I will now consider the general background and circumstances leading to the winding up order and the application to pay the CMA debt into Court.

General background to winding-up order 34 The Applicants tendered evidence in relation to the debt of US$525,888.38 in respect of which the winding up order was made. Mr McLure objected to this evidence on the basis that the evidence related to whether the debt was truly owing and to whom it was owing and submitted that it was impermissible to raise these matters because the Company had failed to set aside the Statutory Demand and the debt can no longer be disputed. In this regard Mr McLure relied upon the following passages of Barrett J's judgment in Brolrik Pty Ltd v Sambah Holdings Pty Limited (2001) 40 ACSR 361: [32] That, on the evidence, is a matter of which those in charge of the affairs of Sambah were aware from the very beginning. It was, in fact, canvassed in correspondence between the respective solicitors after the statutory demand had been served. The appropriate course would have been to attempt to have the demand set aside. That is the proper avenue for raising issues about the genuineness of the debt claimed by the party moving for winding up. This is borne out by the discussion of the authorities by Palmer J in Redglove Holdings Pty Ltd v GNE & Associates Pty Ltd [2001] NSWSC 867; BC 200105995. His Honour favoured the approach taken by Tamberlin J in Liverpool Cement Renderers (Aust) Pty Ltd v Landmarks Constructions (NSW) Pty Ltd (1996) 19 ACSR 411 over that of Heerey J in Intergraph Public Safety Pty Ltd v Tess Lawrence Media Services Pty Ltd (1996) 19 ACSR 523. I respectfully adopt what was said by Palmer J in the following passage (at [29]): Every creditor claiming payment by a company of a disputed debt is entitled to test the genuineness of that dispute by service of a notice of demand under s 459E in order to invoke the procedures of Pt 5.4. If the dispute is indeed genuine, the creditor will pay the penalty of a costs order when the debtor successfully applies to set aside the demand under s 459G. That is the risk that the creditor takes in serving the notice of demand. But if the debtor company fails to substantiate the dispute in the manner which is required by Pt 5.4 and, in particular, by s 459G, then it cannot, without more, be an abuse of process for the creditor to proceed with a winding up application in reliance upon ss 459C, 459Q and 459S. This is the very procedure which the legislature has devised to secure either the prompt payment of just debts or else the winding up of insolvent companies unable to pay their just debts. Where the debtor company has failed to set aside a statutory demand, it would have to establish by very cogent evidence that, despite the existence of a debt which can no longer be disputed, the creditor's purpose in seeking the winding up is not to collect payment of its debt or, in default to have "the company wound up", but is, rather to achieve some entirely collateral end. Such a case is conceivable but would be extremely rare in reality.

[33] The affidavit of the solicitor representing Sambah says that action to challenge the statutory demand was overlooked through administrative error in her firm. That, while unfortunate, is not a ground on which a dispute about the genuineness of the debt the subject of the demand could have been ventilated even upon the hearing of the winding-up application. Once the statutory presumption of insolvency has arisen through non-compliance with a statutory demand which has not been set aside under the regime specifically designed to resolve disputes about the debt underlying the demand, that presumption stands unless, of course, rebutted by evidence. The importance of keeping such disputes within their appropriate forum and context is emphasised in the observations of Palmer J in Redglove Holdings quoted above. 35 Mr Harris accepted that in this application this evidence cannot be used to challenge the existence of the debt. However the evidence is relevant to the explanation of the general background and circumstances leading to the winding-up order. It is also relevant to the application made by the Applicants that the debt (plus interest) should, at this stage, be paid into Court. I admitted the evidence subject to relevance and I am satisfied that it is relevant to these two aspects of the application. In anticipation of this conclusion being reached, Mr McLure tendered the correspondence between the solicitors for CMA/CMAP and the Liquidator enclosing documentation, including the various contracts and invoices, in support of the "reconciliation and explanation" of the claim for US$525,888.38. CMAP Contract - 3 April 2008 36 The Company and CMAP entered into a Sales Contract dated 3 April 2008. That contract involved two shipments of iron ore from a mining company in Indonesia, Uniquartz Singapore Pte Ltd (Uniquartz). CMAP invoiced the Company on 27 May 2008 in respect of the first shipment for the amount of US$801,763.88 after the Company had paid the total amount of US$801,713.88 to CMAP by two payments: US$301,738.88 on 15 May 2008; and US$499,975 on 20 May 2008. There is nothing in the evidence to explain the difference of US$50 in that transaction. 37 CMAP advanced US$3,690,094.36 in respect of the second shipment. During the period 21 May to 1 July 2008 the Company paid CMAP US$3,087,539.33. 38 As at 1 July 2008 CMAP had advanced to the mining company and the shippers US$3,690,094.36 and US$725,247.33 totalling US$4,415,341.59 in respect of both shipments. As at the same date the Company had paid to CMAP US$801,713.88 and US$3,087,539.33 totalling US$3,889,253.21. On these figures the outstanding amount payable by the Company to CMAP was US$526,088.38. In its letter to the Liquidator, CMA claimed that "this is the Debt" and noted that it appeared that "in its initial demand, there was a calculation error of $200.00" in CMA's Statutory Demand for US$525,888.38.

GX Contract - 13 June 2008 39 CMAP entered into a contract with GX on 13 June 2008 (the GX Contract). This was a different type of contract in that, inter alia, GX was purchasing Iron Concentrate directly from CMAP. The GX Contract provided for the purchase of 7600MT (plus or minus 10%) at a price per MT of US$220 with a total amount payable of US$1,672,000. It provided for a down payment of US$836,000 prior to loading with the balance to be telegraphically transferred to CMAP's account. The other terms and conditions of that contract included the following: During the execution of the Contract, any disputes between both parties which are not reaching an amicable settlement will be settled by arbitration held in Singapore. Arbitration fee and other related costs shall be borne by the losing party. 40 CMA claimed in its letter to the Liquidator that the contract price in the Sales Contract of 13 June 2008 of US$220 per tonne was "subsequently amended" to US$100 per tonne by a "replacement contract". The "replacement contract" was dated 21 August 2008 and is referred to below. 41 On 11 August 2008 the Company sent US$700,000 by telegraphic transfer to CMAP's account. 42 On 12 August 2008 CMAP sent to the Company a copy of a running account between it and the Company. That running account recorded the total amounts received as US$3,889,453.21; the total amounts paid as US$4,415.341.59; and the amount owed by the Company to CMAP as US$525,888.38. The last receipt recorded in the running account was on 1 July 2008. The running account does not include the telegraphic transfer of US$700,000. GX Contract - 21 August 2008 43 On 21 August 2008 CMAP, as Seller, and GX, as Buyer, entered into a Sales and Purchase Contract. That Contract recorded that GX was buying 7546 WMT of Iron Concentrate at US$100.00 per dry metric ton "on the basis of Fe 65.00%". That contract included the following: ARTICLE 2: BONUS & PENALTY 1) Fe: (A) For each 1.00% of Fe above 65.00%, the price shall be increased by US$6.00 per DMT per one per cent of Fe, fraction pro rata. (B) For each 1.00% of Fe below 65.00%, the price shall be decreased by US$6.00 per DMT per one per cent of Fe, fraction pro rata. (C) In case total Fe% fall below 55%, material will be rejected and returned to the seller.

2. Moisture: The dry weight should be calculated by deducting free moisture loss at 105 degrees Centigrade from wet weight.

The above bonus and penalty shall be based on the results from CCIC Singapore.

ARTICLE 3: OTHERS The Seller acknowledges that the Seller has received US$174,111.62 by time of signing. Upon receipt of amount US$580,488.38 from Buyer, Seller agrees to release the Final B/L in one working day from receipt of the amount. Within 5 working days after the results from CCIC Singapore are out, both parties agree to settle outstanding amounts based on those results. If Seller are not able to produce the CCIC Singapore certificates after 31 st August 2008, Buyer has the right to use certificates from CIQ or SGS.

ARTICLE 4: ARBITRATION 4.1 This Contract shall be governed by Singapore Law.

4.2 If a dispute arises out of or in connection with this Agreement including any question as to its existence, validity, interpretation or termination, the Parties agree first to seek an amicable settlement.

4.3 In the event of a dispute not being settled amicably within a period of seven days, either Party may require by notice to the other that the dispute be referred to and finally resolved by arbitration in Singapore under the rules of Singapore International Arbitration Centre which Rules are deemed to be incorporated by reference into this Clause. 44 In its letter to the Liquidator CMA claimed that the US$700,000 was a payment in respect of the GX Contract reducing the invoiced amount from US$754,600 to US$54,600. CMA claimed that when the amount of $526,088.38 is added to the outstanding amount of US$54,600 the figure of $580,688.38 is reached. 45 CMA claimed in its letter to the Liquidator that the Company had acknowledged that the debt of US$580,488.38 ("suffering from a $200.00 error in calculation") was payable because the First Applicant had written a cheque in that amount payable to CMAP and that it "bounced and failed to clear". Although CMA suggested to the Liquidator that the GX "replacement contract" was to amend the GX contract price, it is clear that there were other significant changes to the GX Contract. CMA did not provide the Liquidator with an executed version of the GX Contract of 21 August 2008. The version of the GX Contract given to the Liquidator by CMA did not include paragraph 1)(C) of Article 2 that gave GX the right to reject the shipment if the iron content fell below 55%. The First Applicant annexed the executed version of the GX Contract of 21 August 2008 to his affidavit filed on 6 July 2010 which included paragraph 1)(C) of Article 2. 46 The First Applicant gave affidavit evidence that when he wrote the cheque for $580,488.38 he gave it to Mr Alvin Ng, a director of CMAP, when he was in Singapore around 21 August 2008. The cheque was post-dated to 16 September 2008 because the First Applicant needed to be satisfied that the iron content of the cargo was a content base of 65%. At the time that he wrote the cheque the First Applicant did not have a CCIC Singapore quality survey report as referred to in Article 3 of the contract. The parties agreed to "settle outstanding amounts" under the contract within five working days of the CCIC Singapore coming "out" and "based on those results". The First Applicant's evidence, which was unchallenged, was that he cancelled the cheque on 22 September 2008 because he was not provided with any CCIC Singapore certificates and the only certificate of which he was aware was the CIQ certificate of 4 August 2008 provided to him in early September 2008 which recorded an iron content of only 47.59%. 47 The dispute in relation to this shipment is the subject of arbitration in Singapore. On 30 June 2010 the sole arbitrator gave directions for the preparation of written submissions in that matter and there is to be a further directions hearing after 13 September 2010.

48 In the proceedings that the Applicants propose the Company would bring against CMA/CMAP, it is submitted that the Company would claim that the US$700,000 was applied to the debt owed back to CMAP in respect of the 3 April 2008 contract; with the further claim that the acknowledgement in Article 3 of the GX contract of the receipt of US$174,111.62 (being US$700,000 less $525,888.38) is an acknowledgement that the debt of US$525,888.38 had been paid. CMA claims that the $700,000 was applied to the debt of $754,600 for the GX Contract. A difficulty for CMA's argument appears to be Article 3 of the GX Contract in which CMAP acknowledges the receipt of US$174,111.62. The only calculation that would result in that amount being "received" is the balance available to CMAP after the US$525,888.38 is deducted from US$700,000.00. 49 I am not dealing with a challenge to the debt in this application. I am merely deciding whether in proceedings that the Applicants propose the Company should bring against CMA/CMAP for declarations that it is not indebted to them, thus incurring legal and possibly other expenses, there would be a serious issue to be tried, such that there is a real prospect of the proceedings being commenced. I am satisfied that there would be a serious issue to be tried in such proceedings. 50 However as a condition of the termination of the winding up of the Company, the debt to CMA/CMAP is to be paid. The only question is whether it should be paid into Court rather than to CMA.

CMA's Financial Position 51 As at December 2009 CMA was forecasting a net loss after tax of approximately $6 million to $7 million before any impairment charges. In an ASX announcement on 11 December 2009, CMA referred to its recent capital raising which "saw existing and new investors supply the company with an additional $25m in funds" and had "reduced its gearing from 46% to 42%". 52 On 19 February 2010 CMA requested an immediate voluntary suspension of its securities from quotation while it considered potential capital raising alternatives and conducted negotiations with its lenders to restructure its working capital and inventory finance facilities. The application for that suspension included the following: Given the current state of discussions and negotiations CMA is not able to presently provide the market with sufficient information to ensure that CMA's shares do not trade on any uninformed basis.

CMA expects to be able to provide an update of its position to the market by the end of next week.

CMA is not aware of any reason why the suspension should not be granted. 53 CMA made a trading loss of $99 million (rounded) for the year ended 30 June 2009 as recorded in a preliminary final report released to the ASX on 28 August 2009. It had a deficiency of working capital, an excess of current liabilities over current assets, of $11.69 million. In a report for the six months ended 31 December 2009 released by CMA to ASX on 16 March 2010, it made a trading loss of $9.5 million during the relevant six months and the deficiency in working capital had increased to $21 million. In a "shareholder update" on 19 April 2010 CMA advised as follows: We wish to provide an update on CMA Corporation Limited's (ASX:CMV)(the Company) capital restructure process.

During the current period of voluntary suspension of trading, the Company continues its capital structure review, working with our advisors to consider the restructure of both debt and equity.

CMA has operated through a difficult period with external economic conditions contributing to the underlying weak performance. Globally we are now witnessing both improving economic conditions and a steady increase in scrap metal pricing.

The Company's debt structure restricts access to working capital and the Company is seeking to address this as part of its capital restructure. The announcement on 12 March 2010 that the Company rolled over and restructured financing facilities for all Australian operations with ANZ is just one step in CMA's capital restructure process and the Company will remain in voluntary suspension until it is further progressed with this process. 54 On 16 March 2010 Deloitte Touche Tohmatsu provided the Independent Auditor's Review Report in relation to CMA and Controlled Entities which included the following: Material uncertainty regarding continuation as a going concern Without qualifying our opinion, we draw attention to Note 1 in the financial report which indicates that the consolidated entity incurred a net loss before tax of $11,876,000 for the half year ended 31 December 2009 and, as of that date, the consolidated entity's current liabilities exceeded its current assets by $20,529,000. These conditions, along with the other matters as set forth in Note 1, indicate the existence of a material uncertainly which may cast significant doubt about the consolidated entity's ability to continue as a going concern and whether it will realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the financial report. 55 In answer to this evidence, CMA relied upon confidential evidence that, in the circumstances, is not appropriate to detail. However an anodyne conclusion from that evidence is that by approximately 20 August 2010 CMA will be able to define its financial position with more precision. 56 As I have said above, I am satisfied that there is a serious issue to be tried in the proposed proceedings to be brought by the Company against CMA/CMAP. I am also satisfied that justice dictates that until 20 August 2010, when CMA will be in a better position to define its financial position with more precision, the CMA debt is to be paid into Court in these proceedings. I will list the matter before me on 23 August 2010 for the purpose of assessing that position and the status of the proposed proceedings against CMA/CMAP. On that occasion I will also consider whether the money is to remain paid into Court, and if so whether it should be attached to the proposed proceedings against CMA/CMAP. Conclusion 57 Although both the Applicants and the Liquidator proposed that an order be made terminating the winding up and thereafter steps be taken, including the capitalisation of the loans, I am satisfied that those steps should be completed prior to the order being made terminating the winding up: Owners Strata Plan 70294 v LNL Global Enterprises Pty Ltd and Ors (2006) 60 ACSR 646 at 651, [25]. 58 There will be orders: (1) granting leave under s 471A of the Act to the Applicants to the extent necessary to enable them to comply with any of the following orders; (2) that within 5 days the Applicants pay to the Company the amount of $393,758.77 by way of loan for the balance of the CMA debt not accounted for from the Liquidator's bank account; (3) that within 7 days the Company pay into Court in these proceedings the amount of $629,152.27; and (4) that within 7 days the Applicants take all steps as may be required to capitalise their loan accounts in the Company of (a) $3,449,854, (b) $404,607 and (c) $393,758.77, by subscribing for capital in the Company equivalent to the amount of their loan accounts on the basis that the loan accounts are discharged by the shares allotted to them. These figures are relevantly calculated as at 9 July 2010. Should the parties wish to adjust these figures to take account of the additional days since the figures were provided, they should adjust them by consent in the Short Minutes of Order. 59 The time limit in these proposed orders may also be adjusted by consent before formal orders are made. I will list the matter for formal orders on 23 July 2010 at 10 am or such other date and time to suit the parties. The formal orders should include an order listing the matter after these steps are taken for the making of the order terminating the winding up and orders in accordance with paragraphs 5 to 17 of the Liquidator's Draft Short Minutes of Order dated 9 July 2010. The matter will also be listed on 23 August 2010 at 10 am, or such other date to suit the parties, for the reasons referred to earlier in relation to the payment into Court. If the parties are unable to agree on a costs order I will hear argument when the matter is next listed.

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