Londish v Sheahan; Re Valofo Pty Ltd

Supreme Court of NSW|2023-08-18|Before: Williams J

Introduction

Mr John Chand and Mr Patrick Loi are the plaintiffs in these proceedings. They were appointed as joint and several administrators of the defendant, Stellar Agritech Pty Ltd, on 21 July 2023. It is convenient to refer to the plaintiffs as the Administrators, and to the defendant as the Company.
On 8 and 9 August 2023, a shareholder and creditor of the Company questioned the validity of the Administrators' appointment. The Administrators promptly commenced these proceedings seeking a declaration pursuant to s 447C(2) of the Corporations Act 2001 (Cth) that their appointment was valid or, alternatively, an order pursuant to s 447A(1) and/or s 1322(4) of that Act that Part 5.3A is to operate (and has operated at all relevant times) in respect of the Company as though the resolution passed by its sole director on 21 July 2023 was a valid resolution for the purpose of s 436A.
The proceedings were heard on an urgent basis on Friday, 18 August 2023. Assuming that the Administrators were validly appointed, Monday, 21 August 2023 was the last day for the Administrators to convene the second meeting of creditors, which is due to be held by 28 August 2023. The solicitors for the shareholder and creditor who questioned the validity of the Administrators' appointment were notified of the hearing date, and accepted service of the originating process, the supporting affidavit of Mr Chand, and the exhibit to that affidavit on 17 August 2023. They did not appear at the hearing.
Mr Tao of counsel appeared for the Administrators. The Court was greatly assisted by his careful and detailed written and oral submissions. At the conclusion of the hearing, I made a declaration pursuant to s 447C(2) of the Corporations Act to the effect that the appointment of the Administrators was valid, and ordered that the Administrators' costs of the proceedings be costs in the administration of the Company. These are my reasons for making that declaration and order.

Salient evidence

The Company was incorporated on 2 March 2016.
As at December 2016, the shareholders of the Company were Mr Peter Velthuis, Mr David Pipkorn, Mr Bronte Mawson, Mr Nicholas Harding, and Mr Andrew Mounas. With the exception of Mr Mounas, each of those shareholders was also a director of the Company. Mr Harding was the company secretary.
Newagritec Pty Ltd, a company controlled by Mr Raphael Shin, became a 51 per cent shareholder in the Company in December 2016 after entering into the subscription agreement referred to at [17] below. The Company, Newagritec, and the other shareholders entered into a shareholders' agreement at the same time, as referred to in more detail at [19] below.
Mr Raphael Shin was appointed as a director of the Company on 6 February 2017. Mr Mounas and Mr Harry Oesep were also appointed as directors on that date.
The Company presently has 1,000,000 ordinary fully paid shares on issue, of which: 1. approximately 51 per cent are held by Newagritec; 2. approximately 15.6 per cent are held by Mr Pipkorn; 3. approximately 11.76 per cent are held by Mr Velthuis; 4. approximately 11.76 per cent are held by Mr Mawson; 5. approximately 4.9 per cent are held by Mr Harding; and 6. approximately 4.9 per cent are held by Mr Mounas.
Mr Shin has been the sole director of the Company since 16 May 2018.
On 21 July 2023, Mr Shin resolved that the Company was, in his opinion, insolvent, or likely to become insolvent at some future time, and to appoint Mr Loi and Mr Chand as Administrators pursuant to s 436A of the Corporations Act.
The Administrators issued their initial report to creditors on 25 July 2023. Mr Shin completed a Report on Company Activities and Property (ROCAP) on 1 August 2023. The first meeting of creditors was held on 2 August 2023. To date, the Administrators have inspected and secured the real property owned by the Company, engaged a valuer and liaised with real estate agents in relation to the potential sale of that property, collected and reviewed the Company's books and records and formed a view about solvency, considered what steps should be taken (if any) in relation to legal proceedings to which the Company is a party, and liaised with Mr Shin in the course of their investigation of the Company's affairs. The Administrators are continuing to work on verifying the information provided by Mr Shin in the ROCAP.
The salient aspects of Mr Chand's evidence, which is based on the Administrators' investigations to date, may be summarised as follows.
The Company was incorporated to build an integrated stock feed production, artificial breeding and stud operation in Horsham, Victoria, and to use this as a foundation for commercial livestock joint ventures in Australia and overseas.
The Company operated in its own right, and not as trustee of any trust.
In December 2016, the Company acquired certain intellectual property from Mr Velthuis, Mr Mawson, and Mr Pipkorn. The Administrators are endeavouring to identify, locate, and value that intellectual property.
At the same time, the Company entered into a subscription agreement with Newagritec, which provided for Newagritec to invest up to $3,500,000 in the Company in return for the issue of 510,000 shares. The subscription agreement provided that the investment sum was to be paid in instalments of no less than $500,000 on the Company issuing drawdown notices to Newagritec. The Company was required to issue the whole of the 510,000 shares to Newagritec on receipt of the first instalment of those subscription moneys of at least $500,000. If Newagritec failed to make a payment to the Company in response to a drawdown notice issued in accordance with the subscription agreement, a proportion of the shares issued to Newagritec would be cancelled in accordance with a specified formula.
Mr Shin was not a party to the subscription agreement.
The Company, Newagritec, and the existing shareholders entered into a shareholders' agreement at about the same time that Newagritec became a shareholder pursuant to the subscription agreement. It will be necessary to return to some of the provisions of the shareholders' agreement later in these reasons.
The Administrators have not been provided with any signed financial statements for the Company. They are presently of the view that the Company does not appear to have complied with s 286 of the Corporations Act. The Administrators have been provided with: 1. an unsigned balance sheet for the 2017 financial year, which records net assets of $1,020,579, with the principal assets comprising cash ($337,191), land ($224,905), construction in progress ($303,374), plant and equipment ($73,000), motor vehicles ($5,000), and a GST receivable ($81,356); and 2. an unsigned profit and loss statement for the 2017 financial year which records revenue of only $11,603 and a net loss of $141,921.
The Company acquired a property at Bungalally, Victoria, in about March 2017 (the Property). The purchase price was $236,000. The title search does not indicate that the Company's title to the property is subject to any registered mortgage and does not record any caveat. On 19 June 2017, Horsham Rural City Council granted planning permission for the construction of a grain mill, artificial breeding centre, office, and weighbridge. The minutes of a directors' meeting held on 16 October 2017 indicate that the Company had incurred costs of approximately $625,000 in relation to the development of the Property at that time.
The Company ordered certain machinery from Buhler AG in Melbourne in 2017. Correspondence from Buhler to the Company dated 17 August 2018 records that the Company failed to pay a 40 per cent progress payment invoice issued by Buhler on 29 September 2017 in the amount of $378,587.
Unsigned minutes of a meeting of the directors of the Company held on 16 October 2017 state: "Mr Harding tabled a summary of currently due or soon to be due invoices received from creditors. As of the date of the meeting a total of approximately $625K has been currently invoiced for work performed or materials received of which $180K was due imminently. The balance of this invoiced amount of $445K would be payable at the end of October under respective creditor invoice terms. The invoice total included the progress payment due to Buhler which is required to be paid before the goods are authorised to be shipped to Australia from China. In addition, a further $475K is currently estimated for works performed on behalf of the Company for which an invoice is yet to be received. Under the terms of the Subscription Agreement between Stellar Agritech and Newagritech on behalf of SpaceCon, a third drawdown from the NAB facility for an amount of $1,000,000 had been submitted on 10 August with a request that the funds be deposited in the Stellar bank account by 17 August. As at the date of the meeting, the third drawdown funds were still outstanding following a number of requests for an update on when the funds would be received. Mr Shin advised at the meeting that as there had been a delay in drawing down on the NAB facility earlier in the year, that the loan facility now needed to be reprocessed through the bank's credit department, which had been the primary cause of the delay … It was therefore Mr Shin's view that the remittance of the third drawdown amount of $1M would not occur until mid-November. Mr Shin advised that he was pursuing alternative short-term financing to allow for the payment of currently due creditor payments and he would be in a position to advise the Stellar Board by the end of the week on what he will be able to provide. Mr Shin reaffirmed to all directors that he acknowledged his contractual obligation to provide funding to Stellar Agritech and that the full $3.5M investment would be provided by him. Given the current situation it was resolved that ongoing work should cease immediately in order that no further expenditure commitments were incurred. A decision on when to resume activities would be made once sufficient funds were received. …"
The unsigned minutes record that Mr Shin, Mr Velthuis, Mr Pipkorn, Mr Mawson, Mr Mounas, Mr Oesep, and Mr Harding were present at that meeting. Mr Harding had resigned as a director on 16 May 2017 but remained as the company secretary.
The Administrators' investigations indicate that the Company did not receive the third drawdown amount of $1,000,000, or any other funding, after October 2017.
The Administrators are in possession of a letter dated 10 March 2018 on the letterhead of Newagritec, signed by Mr Shin as managing director of that company, entitled "Guarantee for Creditors of Stellar Agritech Pty Ltd". The letter states: "Background Stellar Agritech Pty Ltd ('Stellar') is currently constructing a Stock feed facility at Horsham, Victoria, Australia. I am the primary funder of this project and Chairman of Stellar. Unfortunately, my company's short-term funding circumstances have not allowed it to make the next funding tranche to Stellar. We have been negotiating for many months with my company's bank for this funding. I sincerely apologise for the delay in current payments to you on behalf of myself and the Stellar Board. I intend through my company, to fully fund the project and am working to obtain the remaining funding in the near term for Stellar. Guarantee I, Raphael Shin, Managing Director of New Agritec Pty Ltd, guarantee that all current creditors of Stellar, will be paid on or before the 31st May 2018, with interest payable at a rate of 8% per annum from invoice date to payment date. Thank you for your considerable patience."
During the period from 16 April to 16 May 2018, Mr Harding resigned as the company secretary, and Messrs Oesep, Mounas, Mawson, Pipkorn, and Velthuis resigned as directors, leaving Mr Shin as the sole director of the Company. Mr Pipkorn's resignation letter stated that there "was not enough evidence given of solid financial arrangements being pursued to provide me with the confidence to continue giving more valuable time and effort to this project".
The correspondence from Buhler, to which I have referred at [22] above, seeks payment of outstanding invoices totalling $744,179 as at 17 August 2018.
The Administrators are in possession of a schedule of invoices sent by email from Mr Mounas to Mr Shin on 20 August 2018 attaching a spreadsheet of unpaid invoices totalling $1,407,853 (including the sum of $744,179 invoiced by Buhler). The dates of invoices listed in the schedule range are within the period from September 2017 to March 2018.
The Administrators are also in possession of a letter dated 23 August 2018 issued on the letterhead of the Company and signed by Mr Shin in his capacity as Chairman. The letter is addressed to "Dear Creditors". It states: "I wish to further advise that despite the guarantee provided to you and my previous assurances, no funds have been received by Stellar Agritech to allow your outstanding invoices to be paid. I can only continue to apologise for this very unfortunate and distressing situation and the impact it is having on your businesses and individuals. As advised in my previous update to you, dated 25 June 2018, the funding facility for my family company, Raphael Shin Enterprises Pty Ltd, has been withdrawn and 'called-in' by my bank. This was to be the source of the remaining funds for Stellar Agritech. … I am in refinancing discussions with a number of financial institutions. I am very confident that I will be able to refinance the funding facility in the next few months that will allow Stellar Agritech to be provided with the remaining funds for creditors to be paid and the Horsham Stockfeed Facility to be fully completed. I assure you that I am fully committed to Stellar Agritech and can only appeal to you for your continued patience. I will never walk away from my obligations to Stellar Agritech and hence to yourselves."
The Company has not completed the development of the Property and has never commenced trading as a stock feed production or artificial breeding and stud operation.
Photographs taken when the Administrators' staff inspected the Property depict a rural property on which some foundations and formwork have been laid, but on which no buildings have been constructed. The Administrators understand that further expenditure of approximately $2,500,000 would be required to develop the Property into a functioning feed facility.
A letter to the Administrators dated 31 July 2023 from the solicitors acting for Mr Velthuis and a company associated with him, North Wonwondah Pastoral Co Pty Ltd (NWPC), states that: 1. as at August 2018, there were approximately $1,400,000 worth of creditors reported in the Company's books, and "[e]veryone agreed that there was no funding and creditors could not be paid"; 2. letters sent by Mr Shin to creditors detailed his efforts to obtain funding, and his position on the funding status at the time; and 3. "[t]he project was financially starved in 2018 and funding did not eventuate for the project to commence".
As I have already mentioned, the Property is unencumbered. The ROCAP submitted by Mr Shin estimated that the value of the Property as $500,000. There is no other evidence of its value. Real estate agents have advised the Administrators that a four to six week program would be required to sell the Property under a tender process or expressions of interest program.
There are presently two legal proceedings on foot in the Supreme Court of Victoria involving the Company.
The first proceeding concerns the costs payable under a costs order made in earlier substantive proceedings in favour of NWPC against the Company and Mr Shin. On 24 July 2023, the Costs Court of the Supreme Court of Victoria issued a notice pursuant to rule 63.86 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) that, if the applicant's bills of costs were to be taxed, the estimate of the total amount for which an order on taxation would be likely to be made is $175,270. The notice states that, if either party files a notice of objection to the estimate, the matter will be listed for taxation before the Costs Registrar. However, if no party files a notice of objection within 21 days after the date of the notice, the Costs Court may make an order on taxation in the amount of the estimate.
There is no evidence suggesting that any party filed a notice of objection. The proofs of debt submitted to the Administrators include a proof submitted by NWPC in the amount of $227,681 (being the amount of the bill of costs) or alternatively $175,270 (being the estimated amount of taxed costs stated in the notice referred to above).
The second proceeding was commenced by Mr Velthuis against the Company seeking orders for access to the Company's books and records and orders for rectification of the Company's share register to mark shares held by Newagritec as partly paid. I assume that Mr Velthuis relies on Newagritec's failure to pay the third drawdown notice issued by the Company under the subscription agreement in support of his application to rectify the share register. I note that there is no evidence that the Company has taken any step to enforce the subscription agreement, such as suing Newagritec for damages or suing for an order for specific performance. Nor is there any evidence that Mr Velthuis or any other shareholder has sought leave under s 237 of the Corporations Act to take such action on behalf of the Company.
The Company has three bank accounts with a combined balance of approximately $21,950.
The Administrators have not yet reached a concluded view about the status or amount owing to of any person claiming to be a creditor of the Company or identified as a creditor in the Company's records. However, the Administrators' preliminary estimate of creditors' claims against the Company is $2,400,000, based on proofs of debt received to date totalling $945,255 and on the schedule of invoices referred to above totalling $1,407,853. The proofs of debt include a proof lodged by Mr Shin in the $26,642 and a proof lodged by RSE in the amount of $660,672 in respect of a loan to the Company. NWPC and Mr Velthuis dispute that the Company owes money to Mr Shin or to RSE.
Although the Administrators are still assessing individual creditor claims, Mr Chand's sworn evidence is that he is of the opinion that the Company is likely to be insolvent within the meaning of the Corporations Act. The reasons identified in Mr Chand's evidence, and in the submissions made by counsel for the Administrators, include that: 1. the evidence summarised above demonstrates that the Company has had cash flow difficulties and has been unable to pay its creditors since 2017; 2. on the basis of the Company's Business Activity Statements, together with the evidence summarised above, the Company ran out of funds before it could complete the development of the Property. The Company therefore never commenced trading as a stock feed production, or artificial breeding and stud operation, and has not generated any revenue; 3. the Company's cash balance of $21,953 is insufficient to pay the amount likely to be owing to its creditors, which includes (at least) the costs liability in the amount of $175,270 stipulated in the notice issued by the Costs Court; and 4. the Company's only other asset of any value is the Property, which is an illiquid asset of uncertain value, and which may be difficult to realise given its rural location and partly-developed state, and the estimated $2,500,000 cost of completing the development that has been approved.
On 8 August 2023, the solicitors acting for NWPC and Mr Velthuis (Hopkins Lawyers) sent an email to the Administrators stating that "it appears that there may be an issue with the validity of the resolution appointing the Administrators made on 21 July 2023". The email then set out 14 points, which raised two substantive issues: 1. there was no Special Majority Approval of shareholders [1] for the appointment of the Administrators, contrary to clause 7.2 and Schedule 4 of the shareholders' agreement dated 21 December 2016, which provides that the Company must not do, or commit to do, specified things without such approval, including: 1. taking a step to dissolve or wind up the Company (Schedule 4, item 6); 2. stopping carrying on, or materially altering the scale of operations of, the "Business", which is defined as the business described in the business plan agreed between the shareholders and any other activity carried on by the Company from time to time (Schedule 4, item 7); and 3. undertaking or undergoing a "Reorganisation Event", which is defined as a bonus issue of shares, a sub-division or consolidation of shares or any other reorganisation or reconstruction of the share capital of the Company where the Company does not pay or receive cash (Schedule 4, item 14); and 1. Newagritec owes more than $2,000,000 to the Company under a subscription agreement and that, with those funds, the Company would appear to be solvent and able to pay all of its creditors (including paying the debt allegedly owing to RSE, which is disputed by Mr Velthuis), which calls into question whether or how Mr Shin formed the belief that the Company was insolvent, or likely to become insolvent, at the time that he passed the resolution to appoint the Administrators pursuant to s 436A of the Corporations Act.
The email concluded with Hopkins Lawyers stating that the Administrators were under a duty to review the validity of their appointment and, if necessary, seek ratification by the Court-referring to In the matter of Condor Blanco Mines [2] -and urging the Administrators to seek legal advice. In that case, Barrett AJA reviewed the authorities concerning the responsibility of an administrator to assess the validity of their appointment. His Honour said that, in addition to reviewing the terms of the resolution of the board by which they have been appointed, an administrator "must be attentive to any matter coming to his or her notice that may call into question the premise upon which the appointment is made, that is, that directors genuinely holding the requisite opinion concerning solvency have validly and regularly passed a resolution in terms of s 436A". [3] If the board of a company resolves under s 436A that, in its opinion, the company is insolvent or likely to become insolvent at some future time, but the board does not in fact hold that opinion, or the opinion is founded on some material error of fact or law, then both the resolution and the appointment of the administrator are invalid. [4]
Hopkins Lawyers did not endeavour to explain the discrepancy between, on the one hand, the claim in their 8 August 2023 email that the Company would appear to be solvent, and, on the other hand, their statements in their 31 July 2023 letter referred to above about the Company's financial position as at August 2018, including that "[e]veryone agreed that there was no funding and creditors could not be paid".
Hopkins Lawyers sent a further email to the Administrators on 9 August 2023 identifying certain alleged discrepancies between the Company's records and the information provided by Mr Shin in the ROCAP submitted to the Administrators. Hopkins Lawyers contended that Mr Shin or Newagritec are liable to the Company for funding of $3,500,000 that they agreed to provide for the Project pursuant to the subscription agreement, and pursuant to letters of guarantee signed by Mr Shin in 2018 in which he allegedly guaranteed the funding of the Project and guaranteed that he would ensure that payments were made to the Company's creditors. Hopkins Lawyers stated that it appeared from the letters of guarantee that "Mr Shin meant he is liable for these promises to pay creditors for the Company, either through his funding agreement or his 'legal binding' 'guarantee' to pay those creditors". Hopkins Lawyers did not identify the basis on which they contended that Mr Shin had any personal liability to the Company under the subscription agreement, which does not name Mr Shin as a party. Nor did Hopkins Lawyers attempt to explain the discrepancy between the contention in their 8 August 2023 email that the subscription agreement gave rise to a liability of $2,000,000, and the contention in their 9 August 2023 email that it gave rise to a liability of $3,500,000. As I have already mentioned, $3,500,000 is the maximum amount that was payable by Newagritec under the subscription agreement in response to drawdown notices issued by the Company, and the 16 October 2017 minutes referred to above recorded that Newagritec had paid two drawdown notices as at that date. As the subscription agreement provided for drawdown notices to be in minimum amounts of $500,000, I infer that Newagritec paid at least $1,000,000 of the $3,500,000 prior to 16 October 2017.
On 14 August 2023, the Administrators' solicitors wrote to Hopkins Lawyers stating that, as the validity of their appointment had been questioned, they considered that it would be appropriate to make an urgent application to the Court for relief under ss 447A(1), 447C(2) and/or 1322(4) to validate their appointment as administrators. The letter requested Hopkins Lawyers to advise them as to the position of NWPC and Mr Velthuis in respect of that application.
Hopkins Lawyers replied by email later that day questioning why the Administrators had decided to make an urgent application to the Court concerning their appointment in circumstances where there is, at this stage, no draft deed of company arrangement and no second report to creditors, and the Administrators had not responded to the matters raised in the earlier correspondence referred to above. That response is so inconsistent with Hopkins Lawyers' correspondence of 8 and 9 August 2023 that it raises serious questions, in my view, about whether Mr Velthuis and NWPS were acting in good faith in questioning the validity of the Administrators' appointment on the grounds identified in Hopkins Lawyers' 8 August 2023 email and pressed in their 9 August 2023 email. However, as will become apparent, I have not found it necessary to reach any conclusion about the bona fides of Mr Velthuis and NWPS for the purpose of determining these proceedings.
On 16 August 2023, the Administrators commenced these proceedings, seeking: 1. a declaration pursuant to s 447C(2) of the Corporations Act that their appointment as voluntary administrators of the Company was valid; 2. alternatively, an order pursuant to s 447A(1) and/or s 1322(4) of the Corporations Act that Part 5.3A of the Act is to operate, and has at all relevant times operated, in respect of the Company as though the resolution its sole director passed on 21 July 2023 was a valid resolution for the purpose of s 436A; and 3. an order that their costs of the proceedings be costs in the administration of the Company.

Consideration

Section 447C of the Corporations Act relevantly provides: "(1) If there is doubt, on a specific ground, about whether a purported appointment of a person as administrator of a company … is valid, the person, the company or any of the company's creditors may apply to the Court for an order under subsection (2). (2) On an application, the Court may make an order declaring whether or not the purported appointment was valid on the ground specified in the application or some other ground."
I have determined that the first matter raised by Mr Velthuis and NWPC, questioning the validity of the appointment - the contention that the appointment of the Administrators without Special Majority Approval of shareholders was contrary to the shareholders' agreement and therefore invalid - is without substance.
Mr Shin is a director of the Company. He is not a party to the shareholders' agreement, which is an agreement between the Company and each of its shareholders. Mr Shin is bound to comply with his statutory and fiduciary duties as a director of the Company including, relevantly, the duty under s 588G of the Corporations Act to prevent insolvent trading. If a company director, acting in good faith, holds the belief that the company is insolvent, or is likely to become insolvent at some future time, a resolution passed by that director to appoint administrators under s 436A of the Corporations Act is a valid corporate act, irrespective of whether a shareholders' agreement to which the director is not a party contemplates or provides that shareholder approval be obtained for any such resolution. [5]
In any event, there is no merit in Hopkins Lawyers' contention advanced on behalf of Mr Velthuis and NWPC that clause 7.2 of the shareholders' agreement, read together with items 6, 7, and/or 14 of Schedule 4, requires special majority shareholder approval for the appointment of administrators under s 436A of the Corporations Act. Such an appointment is not a step to dissolve or wind up the Company (item 6). It may lead to such steps being taken, but it may also avoid such steps. Whether such steps are taken is a matter for the second meeting of creditors. The appointment did not stop or materially alter the scale of operations of the "Business", as defined in the shareholders' agreement (item 7). The evidence that I have summarised above establishes that the Company was not trading or carrying on any business for some considerable time prior to the appointment of the Administrators. The appointment is not a "Reorganisation Event" as defined in the shareholders' agreement (item 14).
The second matter raised by Mr Velthuis and NWPC questioning the validity of the Administrators' appointment is their contention that Newagritec and/or Mr Shin owe the Company $3,500,000, or $2,000,000, under the subscription agreement and that, with those funds, the Company is solvent.
For the reasons explained at [45] above, the maximum amount that Newagritec owe the Company under the subscription agreement is $2,000,000. It may be something less than that. Mr Shin has no personal liability to the Company under the subscription agreement. To the extent that Mr Shin's letters referred to at [26] and [30] above are enforceable against him as guarantees, they are enforceable by the Company's creditors and not by the Company itself.
Implicit in Mr Velthuis' and NWPS' contention is an assertion that Newagritec has the capacity to pay the amount owing under the subscription agreement. That assertion is irreconcilable with the objective facts that the Company took no steps to enforce that obligation against Newagritec at any time after October 2017. I infer that, if the Company - or Mr Velthuis and the other shareholders not aligned with Newagritec - had considered that there was any material prospect of Newagritec being able to raise the funds necessary to pay the outstanding subscription moneys at any time after October 2017, the Company would have taken action to enforce Newagritec's obligation to comply with the third drawdown notice referred to in the 16 October 2017 minutes and to issue and requirement payment of further drawdown notices up to the total aggregate amount of $3,500,000. It was open to Mr Velthuis and the other directors to cause the Company to take such action at any time before they resigned in April and May 2018. Thereafter, it was open to Mr Velthuis or any other shareholder of the Company to seek to leave under s 237 of the Corporations Act to commence such an action on behalf of the Company. They did not do so. According to Hopkins Lawyers' 31 July 2023 email to the Administrators, it was accepted that the project was "financially starved" and, by August 2018, "[e]veryone agreed that there was no funding and creditors could not be paid".
There is no evidence that Newagritec's financial position or ability to raise funds has improved since August 2018. Hopkins Lawyers' 8 and 9 August 2023 emails to the Administrators assert that Mr Shin and RSE have significant wealth, but do not suggest that Newagritec would now be in a position to comply with drawdown notices under the subscription agreement. As referred to at [38] above, the legal proceedings that Mr Velthuis did commence are proceedings against the Company to rectify the share register to mark Newagritec's shares as partly paid. By seeking that relief rather than seeking leave to commence proceedings on behalf of the Company to enforce the subscription agreement, Mr Velthuis appears to have accepted that there is no prospect of Newagritec funding the Company in response to the third drawdown notice issued in 2017, or in response to any future drawdown notice.
Newagritec's failure to fund the Company from October 2017, the fact that the Company is not trading or generating revenue, and the fact that it lacks cash or liquid assets to meet the costs liability of at least $175,270 - let alone to pay debts owing to other creditors - provides strong support for the view that the Company is presently insolvent. [6] That is so, assuming that the amounts owing to creditors are at the lower end of the range identified by the Administrators, and even assuming (in favour of Mr Velthuis and NWPC) that the proofs of debt submitted by Mr Shin and RSE will not ultimately be admitted. Indeed, the evidence presented to the Court on this application suggests that the Company is likely to have been insolvent since late 2017 or some time in 2018, but I need not express any final view about that. At the time when Mr Shin passed the resolution in terms of s 436A on 21 July 2023, it must have been obvious to him that the enforcement of the costs order in the first proceedings was imminent. The evidence discloses no rational basis for inferring that, at that time, Mr Shin did not genuinely hold the opinion that the Company was insolvent or likely to be insolvent in the future, or that his opinion was founded on some material error of fact or law. I have formed that conclusion notwithstanding that the Administrators adduced no evidence from Mr Shin. The objective facts to which I have referred above are sufficient to expose the doubts raised by Mr Velthuis and NWPS as unfounded.
Orders made by the Court under s 447C of the Corporations Act are declaratory rather than curative. [7] It is appropriate to make the declaration in the circumstances of this case, where the doubts raised by Mr Velthuis and NWPC have been found not to have substance. [8]
The Administrators' alternative claims for relief do not arise for consideration.

Conclusion and orders

For all of the reasons above, the Court made the following orders on 18 August 2023: 1. Declare pursuant to s 447C(2) of the Corporations Act 2001 (Cth) that the appointment of the plaintiffs as voluntary administrators of the defendant, by resolution of its sole director passed on 21 July 2023 pursuant to s 436A of that Act, was valid. 2. Order that the plaintiffs' costs of these proceedings be costs in the administration of the defendant.

Endnotes

Defined in the shareholders' agreement as meaning a vote, resolution or consent of shareholders who collectively hold more than 75 per cent of the shares on issue.
[2016] NSWSC 1196.
Ibid [138]-[144] (Barrett AJA).
Londish v Sheahan; Re Valofo Pty Ltd [2010] NSWSC 337 at [27] (Palmer J).
See In the matter of Lesso Building Material Trading (Sydney) Pty Limited (administrators appointed) [2018] NSWSC 1486 at [23] (Black J) (Re Lesso Building Material Trading); Nipps (Administrator) v Remagen Lend ADA Pty Ltd; In the matter of Adaman Resources Pty Ltd (Administrators Appointed) [2021] FCA 520 at [46] (Banks-Smith J)
See [41] above.
Re Lesso Building Material Trading at [30] (Black J) and the authorities there referred to.
In the matter of HPI Australia Pty Ltd (2008) 26 ACLC 1,230; [2008] NSWSC 1106 at [8] (Barrett J). DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 22 August 2023

Supreme Court (General Civil Procedure) Rules 2015(Vic)r 63.86

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