International Cat Manufacturing Pty Ltd & Anor v Rodrick & Ors

CORPORATIONS - WINDING UP - WINDING UP IN INSOLVENCY - where liquidators made claims to avoid insolvent transactions and to recover losses from insolvent trading - whether respondent was a de facto director

CORPORATIONS - WINDING UP - WINDING UP IN INSOLVENCY - where liquidators made claims to avoid insolvent transactions and to recover losses from insolvent trading - whether arguable case of insolvency

Corporations Act 2001 (Cth), s 9, s 286, s 588FE(3) & (4), s 1305

Evidence Act 1977 (Qld), Pt 5 Div 6

Uniform Civil Procedure Rules 1999 (Qld), r 293

Aon Risk Services Australia Limited v Australian National University [2009] HCA 27

Deputy Commission of Taxation v Austin [1998] FCA 1034; (1998) 28 ACSR 565

Emanuel Management Pty Ltd (In Liq) & Ors v Foster's Brewing Group Ltd & Ors [2003] QSC 205; (2003) 178 FLR 1

Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd [2008] NSWCA 148; (2008) 67 ACSR 105

Natcomp Technology Australia Pty Ltd v Graiche [2001] NSWCA 120

Re: Valleys Rugby League Football Club Ltd [1997] 2 Qd R 645

Ritz Hotel Ltd v Charles of the Ritz Ltd & Anor [No. 21] (1988) 14 NSWLR 128

TP Sullivan SC and JK Ratanatray for the first and second plaintiffs

Russell and Company for the first and second defendants

[1] These proceedings result from the collapse of the first plaintiff, which I will call the company. From about 2001 until 2005, it carried on the business of boat building. The second plaintiffs, Mr Hambleton and Mr Murphy, were appointed as its voluntary administrators on 18 August 2005 and as its liquidators on 14 September 2005.

[2] The first defendant, Mr Rodrick, controlled the second defendant which I will call Nu-Log. As I will discuss, Mr Rodrick became closely involved with the management of the company from at least 2003. The company built a boat for

Nu-Log, but quite apart from that connection, he assumed a role in the company's business which was so extensive that, so it is alleged by the plaintiffs, he became a de facto director.

[3] On 25 November 2003, the company granted a charge over the entirety of its assets to Nu-Log. On 5 August 2005, Nu-Log appointed the third defendants as receivers and managers under that charge.

[4] These proceedings were commenced by a claim which issued on 14 November 2006. The plaintiffs allege that the granting of the charge in favour of Nu-Log was an insolvent transaction and an uncommercial transaction under the Corporations Act 2001 (Cth). They say that the boat which was built for the first defendant or Nu-Log, and transferred to Nu-Log in about 2004, was transferred when the Company was insolvent and the transfer was an unfair preference, an insolvent transaction and an uncommercial transaction. And there are other claims about voidable transactions. They further claim that Mr Rodrick, as a de facto director, wrongly permitted the company to trade whilst insolvent and otherwise breached his fiduciary duties as such a director to favour himself or Nu-Log.

[5] The plaintiffs further claim that the first and second defendants made representations to the company, through its only duly appointed director, to the effect that the first defendant would provide such funds as the company required from time to time to meet its requirements for working capital. They say that in consequence the company continued to trade and it suffered loss.

[6] The proceedings have not been prosecuted satisfactorily. Last April, I made orders by consent for, amongst other things, the plaintiffs to serve written summaries of the evidence-in-chief of the witnesses on whom they will rely in respect of those issues on which the plaintiffs bear the onus of proof, those summaries to be provided by 4 June 2009. Subsequently that date was extended by consent. On 9 July 2009 the plaintiffs' summaries had not been provided and I made a further order in the same terms for their provision by 12 August 2009. Counsel then appearing for the plaintiffs said there should be no difficulty in complying with that order. However, nothing was provided by 12 August and the case was re-listed for review on 25 August. Shortly prior to then, a purported summary of evidence was provided but it was well short of the required content of a summary of evidence. I gave examples of the deficiencies of this purported summary in my judgment of 25 August.[1]

[7] I was then persuaded by the first and second defendants that rather than ordering again the provision of summaries of evidence, I should order the provision of written statements by the witnesses proposed to be called by the plaintiffs. I ordered that such statements be provided by 8 September 2009 and that absent special leave, the plaintiffs should not be permitted to adduce any evidence from a witness from whom a statement has not been obtained and served or to adduce evidence that is not fairly contained in the written statement of that witness. As I then explained, this was not to provide for a trial by written evidence-in-chief. Rather it was to ensure that the defendants were sufficiently notified of the content of the plaintiffs' case so that they could prepare their case in response and not be taken by surprise. Statements rather than summaries were ordered because although the purported summaries were seriously deficient, at the same time the lawyers for the plaintiffs were continuing to maintain that they were sufficient.

[8] Since then the plaintiffs have furnished a number of statements and also some summaries of evidence. On 7 September 2009 the plaintiffs served five witness statements. On 8 September they served a statement of one of the liquidators, Mr Hambelton. On 9 September they served what was described as an "interim list" of the documents upon which they intended to rely at the trial. On 28 September they served summaries of evidence of three other proposed witnesses. On 8 October there was a further witness statement served. And on 12 October the plaintiffs served their list of documents upon which they intended to rely at the trial and summaries of evidence of Ms Morrin and Mr Coughlan. Ms Morrin was the sole duly appointed director of the company. Mr Coughlan is described as Ms Morrin's partner, who at relevant times had some involvement with the company, although not as an officer or employee.

[9] In those circumstances the parties have made these applications:

• The plaintiffs apply for extensions of time for the provision of witness statements and for orders permitting them to provide, in some cases, summaries rather than statements.

• The first and second defendants apply for summary judgment upon the entire claim pursuant to UCPR r 293.

• Alternatively, the first and second defendants seek security for costs.

[10] The defendants say that each of their applications is inspired by what they say is the inadequacy of the case revealed by the statements and summaries which have been provided. And they say that the plaintiffs should not have an opportunity to remedy their deficiencies by any further extension, given their dilatory conduct of the proceedings thus far. It is convenient to discuss first the summary judgment application.

[11] There are numerous causes of action pleaded by the plaintiffs, but it is unnecessary to discuss each and every one of them. It is sufficient to assess the apparent case upon some of the causes of action, because if they are to be tried then there would be no significant advantage in time and costs in giving judgment upon other parts of the plaintiffs' case.

[12] It is convenient to go first to the challenge to the charge granted to Nu-Log. It is common ground that the relation-back day, as that term is defined by s 9 of the Corporations Act, is 18 August 2005. The plaintiffs claim that the charge was an insolvent transaction which, being granted less than four years prior to the relation-back day, is a voidable transaction within s 588FE(4) of the Act. They claim that it was both an insolvent transaction and an uncommercial transaction and was thus avoidable as occurring within two years of the relation back day: s 588FE(3).

[13] The claim under s 588FE(4) requires the plaintiffs to prove that the granting of the charge:

(a) was an insolvent transaction of the company; and

(b) Nu-Log was then a related entity of the company.

[14] The evidence as to insolvency is proposed to be given by Mr Hambelton according to his statement and by Ms Morrin according to her summary. Mr Hambelton's statement begins with the comment that although his statement is made upon the basis of his own personal knowledge, the sources of that knowledge include his review of all relevant files and usual business records "held by my office, or produced to me in my capacity as liquidator, as well as searches and investigations that I have caused to be undertaken as part of these proceedings." In an affidavit he said that that was a misstatement and that he meant to say that his evidence was from his personal perusal of the books and records of the company, information provided to his office by Ms Morrin and Mr Coughlan and conversations he has had with them, together with information obtained from the process of public examination. Still, it far from appears that everything within his statement is something of which he could give original evidence.

[15] However, his analysis of the insolvency of the company at various stages is based upon the company's financial records, within a MYOB system. These records purport to be books kept by the company so that they are taken, absent proof to the contrary, to be books kept by the company under a requirement of the Corporations Act, and the contents of these records are admissible and are prima facie evidence of any matter stated or recorded in them: Corporations Act s 1305. They are purportedly books kept by the body corporate under a requirement of that Act because s 286 requires a company to keep written financial records that correctly record and explain its transactions and financial position and performance. Further they would be books of account for the purposes of Division 6 of Part 5 of the Evidence Act 1977 (Qld). That would require the proof by the plaintiffs that these records were the ordinary books of account of the company and that the entries were made in the usual and ordinary course. At present that evidence may not be disclosed by a statement or summary. But for the purposes of this summary judgment application, that need not be fatal if, as it would appear, the plaintiffs are likely to be able to prove that matter.

[16] The company's balance sheet as at 25 November 2003 within those records is set out in a report by Mr Hambelton attached to his statement. According to that balance sheet, the company then had total assets of $88,923.63 and total liabilities of $402,642.65, resulting in a net deficiency of $313,719.02. Mr Hambelton then notes the following about that balance sheet. Firstly the most valuable asset was recorded as a loan to a company called TIY Manufacturing Pty Ltd. This was, or had been, a related company. It was wound up on 22 May 2003. It is open to Mr Hambelton to comment, as he has, that the loan to TIY should have been written off by 25 November 2003 as a bad debt. On any view, the company had no substantial assets as at 25 November 2003. Its total cash was a little under $24,000.

[17] Of the liabilities, the largest was the recorded balance of a loan by

"R & E Rodrick" in the amount of $247,024.01. Further, there were loans by

Nu-Log totalling about $35,000. The records show that the overall debt to Mr and Mrs Rodrick and/or Nu-Log was of the order of $279,000. However, Mr Hambelton's report says that Nu-Log "has advised that it and its related entities were owed $376,579.56." I should assume that Mr Hambelton will be able to prove that admission by the defendants, although the assumption is presently unnecessary. The point is that the liabilities of the company were, according to the defendants, yet more extensive than the records revealed.

[18] Mr Hambelton's report details some other differences, none of them large in amount, which he has allowed in adjusting the liabilities as recorded in the accounts. Amending the balance sheet in all of these respects (the TIY loan, the defendants' loans and the other matters), Mr Hambelton arrives at a net asset deficiency of $440,621.67. Plainly the company was balance sheet insolvent.

[19] Mr Hambelton then discusses the cash flow solvency of the company as at this date. He compares the current assets and liabilities, resulting in an indication of insolvency. He refers to the company's tax debts at the time of its liquidation, and notes that the debt then outstanding included $24,185.18 which was owing at 25 November 2003. He comments, fairly in my view, that the company did not appear to have a relationship with its then bank which would permit it to borrow funds because the accounts indicate that many of the company's bills were being paid by the personal credit cards of either of Ms Morrin or of the first defendant. The company had no available real property or other assets to provide as security to a bank or another wholly external financier. Mr Hambelton says that this company, as an unlisted private company with a history of trading losses and as balance sheet insolvent, had no basis upon which it could expect to raise capital. Further, the MYOB accounts reveal that as at 25 November 2003 nearly 80 per cent of the debts owed by the company were outside a period of 90 days, including the three largest listed accounts.

[20] On the basis of this information Mr Hambelton's opinion is that the company was insolvent as at 25 November 2003. That is an opinion which he is competent to express and is based upon the admissible accounting records of the Company. There is at least a serious case to be tried as to the company's then insolvency.

[21] It is convenient to note at this point that Mr Hambelton undertakes a similar analysis of the company's solvency during the period 25 November 2003 to 5 August 2005. Again he has regard to the MYOB records. The balance sheet of the company as at 5 August 2005, according to those records, showed a net asset deficiency of $606,921.65, caused by liabilities of $805,604.65 exceeding assets of $198,723. He notes, again according to the MYOB records, that the company continued to trade at a loss during this period. It is unnecessary to refer further to this analysis. In my view there is a serious case to be tried that the company was insolvent after 25 November 2003 until 5 August 2005, being the date of appointment of its receivers.

[22] The case that Nu-Log was a related entity of the company is put as follows. The first defendant, Mr Rodrick, was a director of Nu-Log from 1976. It is alleged that he was also a director of the company at all material times, and more specifically, there is evidence relied upon of his involvement in the affairs of the company from at least early 2003. If he was a director of both the company and Nu-Log, then they were related entities.[2] The question then is whether he was a director of the company.

[23] Section 9 of the Corporations Act defines the term director to include:

"(b) unless the contrary intention appears, a person who is not validly appointed as a director if:

(ii) the directors of the company or body are accustomed to act in accordance with the person's instructions or wishes."

As I understand the plaintiffs' case, it is that the first defendant was within (i) in that he acted in the position of a director. There are extensive references in the witness statements and summaries to what the first defendant did in relation to the company's affairs. But it does not appear that any person claims that the duly appointed director, Ms Morrin, was accustomed to act upon his say so.

[24] The submissions for the defendants rely upon the judgment of Madgwick J in Deputy Commission of Taxation v Austin[3], which was cited with approval by the New South Wales Court of Appeal in Natcomp Technology Australia Pty Ltd v Graiche.[4] Madgwick J said that it is unnecessary in this context to show that the alleged director performed duties which could only be performed as a director, and that the judgment of Williams J (as he then was) in Re: Valley's Rugby League Football Club Ltd[5] should not be understood otherwise.[6]

[25] Madgwick J noted that whether an intermeddler is acting as a director will depend upon the nature of the functions or powers which were exercised and the extent of their exercise.[7] He discussed the problem as follows:

"If, in the case of a small company, a person has, with full discretion, "acted as the company" in relation to matters of great importance to the company, and other than as an arms' length expert engaged for a limited purpose, the conclusion that that person has acted in the capacity of a director may well be justified. The extent to which and the circumstances in which the person has so acted will nevertheless be of importance.

The variety of commercial and corporate life is such that it seems to me unprofitable to attempt a general statement as to what is mean by "acting as a director". Whether a person does so act will often be a question of degree, and requires a consideration of the duties performed by that person in the context of the operations and circumstances of the particular company concerned. I have, for example, referred to the circumstance of the size of the company. In a large and diversified company, great discretion to deal with very important matters must be reposed in employees. In the case of a supermarket chain, as in Tesco, it would hardly occur to anyone to suggest that a managerial employee held to have "acted as the company" in breaking a consumer protection law at a particular store was acting as a director of the vast company concerned. As suggested above, in the case of a single person making decisions for a company the business of which was confined to the operation of a corner store, a different view might be taken.

Similarly, the internal practices or structure of the company may be relevant: commonly a director with particular expertise is assigned particular concerns, and has a bare minimum to do with the general affairs of the company. In such a case, the circumstances may bear the conclusion that such work is more done as an expert employee or consultant than as a director cf Mistmorn Pty Ltd (in liq) v Yasseen (1996) 21 ACSR 173 at 183; [1996] NSWSC 534; 33 ATR 332 (the cases cited at that reference appear to have been included in error).

Another relevant factor may be how the person who is claimed to have acted as a director was reasonably perceived by outsiders who deal with the company. This may aid a conclusion that the supposed director has held himself or herself out as such. Express holding-out was treated as a relevant factor in the Re Valleys case and, with respect, this appears obviously correct. However, an express claim to be a director may, in some cases, be carefully not made. That would not prevent a conclusion, nevertheless, that a person's dealings with third parties point to his or her having acted as a director."[8]

That passage was also cited with approval by Chesterman J (as the then was) in Emanuel Management Pty Ltd (In Liq) v Fosters' Brewing Group Ltd.[9]

[26] On any view this was a small company with relatively few employees and a very simple structure. It had rented premises at the Gold Coast where it undertook the construction of boats. At least prior to the arrival of the first defendant, the management of the company was undertaken by Ms Morrin and to a lesser extent Mr Coughlan. His involvement was extensive at least after the first defendant began to participate.

[27] I go then to the various statements and summaries of evidence in order to extract that which is most important in the plaintiffs' case and for which there is a real prospect that evidence to that effect could be led in admissible form. Much of the argument for the defendants that the statements are not in admissible forms, seemed to overlook the point that the witness statements are not themselves to be the evidence in chief of those witnesses.

[28] A further submission for the defendants was that the proposed evidence was in several instances inadmissible because it would involve secondary evidence of the content of documents. For example there was criticism of the summary of evidence of Ms Morrin as referring to financial forecast budgets, none of which have been disclosed by the plaintiffs or included in the list of documents which they will tender at the trial. The proposed evidence includes things such as:

"[The first defendant] ... spent the majority of time ... at my ... residence, where I had set up a home office ... assisting me in the operation of [the company] by preparing project management plans, costing plans and the cash flow forecasts."

I do not accept the defendants' submission. Evidence of this kind would be led to identify documents by general description rather than to prove their particular contents or terms. If it were led only for that purpose, it would not be subject to the best evidence rule.[10] For example in Ritz Hotel Ltd v Charles of the Ritz Ltd & Anor [No. 21][11], objection was taken to evidence that documents in the nature of budgets were submitted to the defendant by a number of companies and that a certain individual received a copy of each budget. The objection was that this offended the best evidence rule because the documents themselves were not tendered. McLelland J admitted the evidence and noted:[12]

"There is a fairly clearly established line of authority which appears to draw a distinction between evidence as to the general nature of a document on the one hand, and evidence as to its terms on the other.

As a matter of logic it is not easy to see how the general nature of a document can be apparent otherwise than from its terms but, nevertheless, at least for some purposes, that distinction seems to have been consistently drawn in the cases."

"[I]t seems to me that it is permissible for someone like Mr Brazier to give evidence describing a document by some such general description as 'a budget', but if he does give evidence of that kind I would not consider it open to me to infer from the mere fact of that description that the document contained any particular contents and specifically that it complied with, for example, requirements which had been laid down earlier as to what budgets were to contain within this organisation. In other words, the evidence would not be available to support any inference as to the contents of the document except the bare fact that it was a budget ...."

[29] Accordingly, much of the criticism of the proposed case for the plaintiffs is wrongly made. It would be admissible for Ms Morrin to describe work done by the first defendant such as within this proposed evidence:

"[The first defendant] also organised and sat in on meetings about [the company's] budget, sales targets, boat pricing, approving specifications for customer orders ... [working] from home at night and send[ing] emails to [Me]."

[30] The proposed evidence for the plaintiffs could prove that the first defendant was very active in the management of the company's business. According to the proposed evidence of several witnesses, he was at the company's premises effectively on a fulltime basis, overseeing the production of boats, directing staff as to boat building and other matters and negotiating with suppliers. He was also much involved in the financial planning, such as it was, for this company. He appears to have accepted responsibility for the trading performance and future of the company, consistently seeking ways in which to effect cost savings and to make the company profitable. He was also involved in the promotion of its products by his regular attendance at boat shows and similar events. Several witnesses are to be called to say, amongst other things, that he introduced himself to outsiders often as an owner or part owner of the business.

[31] According to the summary of the proposed evidence of Ms Morrin, his involvement increased significantly from about May 2002, and by January 2003 he was involved on this daily basis. On her proposed evidence, in early 2003 she asked the first defendant whether he wished to be paid a wage and he said that he would prefer to have that accrued on the basis that he would be paid the wages "one day" and that they would accrue at "about $50,000 per year". He said that he did not wish to receive a wage immediately because he would have to declare it to the Commissioner of Taxation and he did not wish to draw attention to himself with the ATO. He was never recorded as an employee. Again, according to her proposed evidence, she at one point asked him to become a director and he said he would prefer just to become a shareholder rather than take on the risk of being a director.

[32] According to a witness statement of Mr Carwardine, who worked for a supplier of masts and rigging to the company and who dealt with the first defendant representing this company on a monthly basis, the first defendant said that he believed he could bring about change within the company and "create a success story". He said that all orders on behalf of the company placed with his employer were placed via the first defendant during the period from about the beginning of 2004 until mid-2005 and that the first defendant negotiated the prices for his supplies. He witnessed the first defendant giving directions to employees of the company about "basic production ideas" and construction techniques.

[33] According to Mr Coughlan's proposed evidence, the first defendant compiled spreadsheets which he said were analyses of the production process and which were to increase efficiency and profitability. There is other evidence that he was requiring employees to maintain time records of each of their tasks as part of this analysis. In conversations on dates Mr Coughlan cannot recall, Mr Coughlan would say that the first defendant claimed that he could improve and build the company "into a very saleable company".

[34] Another proposed witness is Mr Hennessy, who was a boat builder employed by the company. According to his statement, staff followed the first defendant's directions, and these were frequently given. He heard the first defendant say to a number of different suppliers that he was "the boss". About six months before the appointment of the receivers, Mr Hennessy decided to resign from the company and he told Ms Morrin, Mr Coughlan and the first defendant. Each of them asked him to stay and the first defendant offered him an increased salary.

[35] Mr Smith was employed by the company from August 2002 as the head boat builder. According to his statement, the first defendant claimed that he had become an owner of the company with a financial interest in the business. The first defendant was aggressively trying to reduce the costs of production which led to a number of disagreements between them. The first defendant, he says, was in the factory on a daily basis asking the workers what they were doing and why they were doing it. The first defendant would often say that the company's budget did not allow for things such as better tools or cooling equipment for the premises.

[36] According to a summary of evidence for a witness, Ms Martin, who owned a business which supplied to the company, there was an occasion when the first defendant visited her and told her that he was a director of the company.

[37] Some of this proposed evidence appears from summaries and not signed statements. Nevertheless, it is still relevant for the present application. It must be inferred that the solicitors who have prepared these summaries have done so from what they have been told by the proposed witnesses.

[38] According to the plaintiffs' case, the first defendant made a deliberate decision not to become a formally appointed director. Moreover, that was discussed with the only duly appointed director. But that is not inconsistent with the position for which the plaintiffs contend. Nor is it fatal to the plaintiffs' case that the first defendant was not paid for his work.

[39] In DCT v Austin[14], Madgwick J said that it appeared to be a

"necessary condition of acting as a director, whether properly appointed or not, that one exercises what might be called the actual (and statutorily extended) top level of management functions ..."

although that was not necessarily a sufficient condition for such a conclusion. On the proposed evidence apparently available to the plaintiffs, they could establish at least that matter. On the plaintiffs' case, the first defendant was not a person solely in control of the company. But the proposed evidence gives the impression that he was as much in control as the company's only duly appointed director. Clearly he was not involved as some specialist consultant or as an employee.

[40] I am not satisfied that the plaintiffs have no real prospect of proving that he was a de facto director and, more generally, that the company and Nu-Log were related entities. The plaintiffs have a real prospect of proving that the charge is a voidable transaction by operation of s 588FE(4). That is a substantial part of the plaintiffs' claim.

[41] Another part of the liquidators' claim is to recover compensation for losses resulting from insolvent trading. The case is that the company was insolvent at least from November 2003, by which time the first defendant was acting as a director. The defendants' argument is critical of the proposed evidence for the plaintiffs as "devoid of any attempt ... to nominate a particular date on which Mr Rodrick acted as a director". If it is established that he acted as a director at all, the conduct of the first defendant was apparently no different from early 2003 until the company's ultimate demise and it would be found that he was a director throughout that period. Similarly, the liquidators have real prospects of proving that the company was insolvent throughout that period.

[42] There are further criticisms of the insolvent trading claim. One is that it is not pleaded and nor could it be proved upon the proposed evidence that there were reasonable grounds to suspect insolvency that subsisted at the time that each debt was incurred. But as to the pleading, it is alleged that there were such reasonable grounds throughout the period from 25 November 2003 until 5 August 2005 (paragraph 16 of the amended statement of claim). As to proof, there is no proposed evidence that the first defendant was in effect the financial controller of the company throughout this period.

[43] It is argued that the claim is flawed in the way that it claims damages for insolvent trading. That criticism has substance. The amended statement of claim alleges that a number of creditors have suffered loss and damage but then what is pleaded is a list of the creditors as at 25 November 2003 and a list of the creditors as at 5 August 2005. The relief claimed is simply "damages pursuant to s 588M(2) ...". No amount is stated, as it should be. It is necessary for the liquidators to plead and prove that certain creditors had debts which were incurred in the relevant period and that they have suffered an amount of loss because of the company's insolvency. But there is no reason to believe that this could not be properly pleaded and proved. It would be a matter of looking at the existing creditors, identifying those whose debts were incurred in the relevant period and calculating the loss from the debt not being paid in full, having regard to the likely dividend from the winding up.

[44] In my view there are real prospects of success against the first defendant upon the insolvent trading claim.

[45] These conclusions are sufficient, in my view, to dispose of the summary judgment application. Although the defendants' arguments addressed each of the alleged causes of action, there was no argument that there was some particular utility in disposing of part of the case within this application. There is a considerable factual overlap between these and other parts of the plaintiffs' case. The claims for damages for insolvent trading against the first defendant and to set aside the second defendant's charge are substantial parts of this litigation and because the case should go to trial on those claims, it is unproductive to rehearse some assessment of the balance of the case.

[46] The plaintiffs apply for extensions of time in which to comply with the orders of

25 August 2009 and for an order permitting summaries rather than statements of evidence in relation to some witnesses.

[47] Mr Hambelton's statement was delivered on 8 September 2009 but after

4.00 pm. That lateness is trivial. A statement from Mr Hutchings was provided on 8 October 2009. This is explained by the fact that he was away between 25 August and 7 September. Attempts have been made to obtain statements from Ms Morrin and Mr Coughlan. They presently reside in the United Kingdom. On 6 October 2009 the plaintiffs received a scanned copy of a statement signed by Mr Coughlan. In the absence of the receipt of original signed statements from these witnesses the plaintiffs filed summaries of evidence on 12 October. As at the date of this hearing it was anticipated that there would be signed statements from both which would be available. The plaintiffs seek an order permitting summaries in lieu of statements or alternatively that they have leave to serve the statements within two days of the receipt of them. The summaries of evidence from these witnesses are adequate. They well serve the purpose intended to be served by the summaries as ordered in cases on this list.

[48] Three witnesses, Ms Martin, Mr Hollier and Ms Storey, have not provided statements. Summaries have been provided.

[49] I am satisfied that the plaintiffs have made genuine attempts to comply with the order of 25 August and that there would be no injustice to the defendants by granting the extensions and the other orders which are sought. There would be no delay to the proceedings occasioned by those orders. Nor would the defendants be prejudiced in preparing their defence. The only purpose of providing for statements rather than summaries in the previous order was that then it appeared that the plaintiffs were unable to appreciate the requirements of a summary of evidence. They have now demonstrated otherwise.

[50] It is true, as the defendants argue, that the plaintiffs had been guilty of serious default in compliance with earlier orders and that they are now seeking a further indulgence. It is also true that a more stringent approach to case management can now be pursued following the High Court's decision in Aon Risk Services Australia Limited v Australian National University.[15] Nevertheless, the interests of justice favour the orders which are sought. Upon that application the order of 25 August 2009 will be varied as follows:

(a) The date for provision of written statements from the proposed witnesses, Mr Hambleton and Mr Hutchings be extended until 8 October 2009.

(b) Statements of evidence of the proposed witnesses, Mr Hollier, Ms Martin, Mr Storey, Ms Morrin and Mr Coughlan need not be provided but no evidence may be called from any of those witnesses which is not fairly disclosed by the summary of the proposed evidence of that witness already provided to the defendants, save with the leave of the trial judge.

(c) The date for the delivery of the list of documents which the plaintiffs intend to tender at the trial be extended to 12 October 2009.

[51] The proceedings were commenced in 2006 so that this is a late application. In correspondence in late 2007 solicitors for the defendants requested security for costs which was declined. But no application was then brought. On 18 February 2009, it was ordered that any application for security for costs be filed by 11 March 2009. By an application filed on 24 March 2009, the defendants sought security for costs against both plaintiffs. However, by an order of 23 April 2009, that application was dismissed by consent with the costs of the application reserved.

[52] The explanation for now pursuing this second application for security is said to be the alleged weakness of the plaintiffs' case, as appears from the witness statements and summaries. It is said that the Court is in a good position to make an assessment of the merits of the plaintiffs' case, and that if the merits are sufficient to overcome the summary judgment application, nevertheless the plaintiffs' prospects are apparently "very slim".

[53] As to the causes of action which I have discussed, I would not rate the plaintiffs' prospects so poorly. They do not have an evidently strong case on the question of the directorship but nor is it an exceptionally weak one.

[54] Some of the causes of action are those of the company and some are those of the liquidators. There are claims by the company against the first and second defendants for breach of fiduciary duty, again upon the premise that the first defendant was a director. In that respect there is an overlap between that case and the claims about preferences and uncommercial transactions for which the plaintiffs are the liquidators. The same applies to the claim for damages from insolvent trading.

[55] There is also a claim by the company for misleading and deceptive conduct based upon the alleged assurances by the defendants of the provision of ongoing financial support.

[56] I accept, as the defendants argue, that there is some prospect of different outcomes between the company's claims and the liquidators' claims. That is a factor which is in favour of an order for security against the company.[16] But that is but one factor. And should the liquidators succeed on some of their claims, this would increase the funds available to meet an order for costs against the company in the event of these different outcomes.

[57] The defendants point to these further factors. The first is, it is said, that the plaintiffs' conduct of the winding up and the prosecution of the proceedings has been dilatory and unsatisfactory in many respects. I am unable to fairly assess their conduct as liquidators except in relation to these proceedings. It should be clear from what I have said in this and previous judgments that these proceedings have not been prosecuted as they should have been. It is said that they have not consulted any of the creditors about the proceedings or sought funding from them or from any litigation funder. That is curious for substantial proceedings in this Court. It is said that they have not sued the only duly appointed director, but instead have brought this claim against the alleged de facto director. They say that there is no apparent difference in the financial positions of Ms Morrin and the first defendant, which would explain why only he is being sued. I am unable to assess whether they should have brought proceedings against Ms Morrin. But in any case that seems of little relevance to the present application. Next it is said that Nu-Log is the company's largest creditor. That may be so but there are many creditors apart from Nu-Log.

[58] It is asserted that it is now certain that no one but the liquidators and their lawyers will receive anything that the defendants may be able to pay if the plaintiffs succeed. Reliance is placed upon a letter written by the defendants' solicitors in mid-July 2008 which purports to analyse that question. That analysis may be sound. The difficulty in assessing the worth to creditors of this litigation is in assessing the likely quantum of the plaintiffs' claims, which is a difficulty compounded by the absence of a proper pleading in some respects of those claims. Nevertheless those are considerations which have long been relevant.

[59] It is submitted that Nu-Log and the first defendant are in poor financial circumstances because of the litigation, and that the first defendant is being treated with medication for a depressive illness so that "more than most defendants, they need security".

[60] In this instance there is no claim that an order for security would stifle the proceedings by the company. But Mr Hambelton says that if he had to seek external funding of the litigation, this would reduce the amount ultimately payable to creditors.

[61] There is an outstanding liability for costs under an earlier interlocutory order. The amount is $8,870.

[62] The basis for an order for security is established, in that there is reason to believe that if the company is successful, it will be unable to pay costs. There are the discretionary considerations in favour of the application to which I have referred. Against the application, the principal factor is its lateness, especially with the events of early 2009 which I have described. In particular, the defendants chose not to pursue an application for security for costs, in the light of an order that they do so within a certain time. Their only explanation for making the application now is what is said to be the weak case raised by the witness statements and summaries. That criticism of the case is exaggerated.

[63] Undoubtedly substantial costs have been incurred since early 2009 and more generally since the time when an application for security for costs should have been brought, which was at least by the end of 2007. Prejudice to the plaintiffs is inevitable, having regard to the steps taken in the proceedings since then and it need not be the subject of specific evidence. There is also the prospect that the whole of the plaintiffs' case will be, in substance, unsuccessful, in which case there will be recourse against the liquidators for at least some of the costs, as well as a prospect that the liquidators will succeed, thus swelling the funds available to the company. Overall I am unpersuaded that security for costs should be ordered. The application for security will be dismissed.

[64] I will hear the parties as to further directions and as to costs.

[1] [2009] QSC 254.

[2] Within (k) of the definition of related entity in s 9 of the Corporations Act.

[3] [1998] FCA 1034; (1998) 28 ACSR 565.

[4] [2001] NSWCA 120.

[5] [1997] 2 Qd R 645 at 657.

[6] [1998] FCA 1034; (1998) 28 ACSR 565 at 569.

[7] [1998] FCA 1034; (1998) 28 ACSR 565 at 569 - 570.

[8] [1998] FCA 1034; (1998) 28 ACSR 565 at 570.

[9] [2003] QSC 205; (2003) 178 FLR 1 at [256].

[10] Cross on Evidence Australian Edition at [39010].

[11] (1988) 14 NSWLR 128.

[12] (1988) 14 NSWLR 128 at 129.

[13] (1988) 14 NSW LR 128 at 131.

[14] [1998] FCA 1034; (1998) 28 ACSR 565 at 569.

[15] [2009] HCA 27.

[16] Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd [2008] NSWCA 148; (2008) 67 ACSR 105 at 119 per Hodgson JA.