Maylord Equity Management Pty Ltd v ReelTime Media Ltd

Maylord Equity Management Pty Ltd v ReelTime Media Ltd - [2008] NSWSC 1045 - NSWSC 2008 case summary — Zoe

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4 There is no dispute about the relevant facts. 5 ReelTime is a holding company. The trading entity of the group, ReelTime Infotainment Ltd ("RI"), carried on the business of providing movie downloads via the internet. 6 On 29 June 2007, ReelTime issued a convertible note to Maylord in respect of a loan of $1M. The terms of the note provided that it could be converted at any time from ninety days after the issue. Maylord advanced $1M to ReelTime upon the terms of the note, in tranches, the last of which was paid on 31 July 2007. 7 On or about 4 October 2007, Maylord exercised its option to convert its advance into forty million shares in ReelTime. 8 On 11 February 2008, RI was placed in voluntary administration. ReelTime itself was placed in voluntary administration on 6 March 2008. Messrs Martin Jones, Darren Weaver and Andrew Saker of Ferrier Hodgson, Perth, were appointed as administrators. Mr Jones appears to have had the principal responsibility for the administration. 9 On 5 March 2008, the day before the administrators were appointed, Maylord's solicitor, Mr Fasha, wrote to the directors of ReelTime concerning the making of the advance of $1M and the subsequent conversion of the loan into shares (which were defined together as "the Transaction"). The letter advised that ReelTime alleged that its decision to enter into the Transaction had been induced by mis-representations as to ReelTime's affairs made by officers and directors of ReelTime before the loan was advanced and before the loan was converted. The letter also advised that Maylord alleged that at the time of the Transaction ReelTime was trading while insolvent. 10 On 11 April 2008, the administrators of ReelTime issued to creditors their Report under CA s 439A(4)(a). I will return to the content of that Report in more detail. 11 On 16 April 2008, the administrators wrote to Mr Fasha requesting details of Maylord's claim as a creditor. Mr Fasha did not receive the letter until 21 April 2008. In the meantime, however, on 18 April 2008, he wrote to the administrators enclosing a copy of his letter to ReelTime of 5 March 2008. The letter continued: "We are instructed to immediately commence proceedings, based upon the allegations set out in our 5 March 2008 letter, which would seek to (amongst other things):

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Our client's position is that in circumstances as alleged, it would be appropriate for your administration to treat the $1 million as a debt owed by Reeltime and treat Maylord's as a secured/priority creditor." 12 On 18 April 2008, a meeting of creditors was held. It was adjourned to 9 May in order to allow the administrators more time to consider further proposals for a DOCA. 13 On 30 April 2008, the administrators wrote to Mr Fasha requesting greater detail of Maylord's claim than had been provided in his letter of 18 April. 14 On 6 May 2008, Mr Fasha wrote to the administrators requesting that Maylord's claim be accepted for voting purposes at a meeting of creditors to be held on 9 May 2008 at a value estimated at $1M. The letter provided a summary of the misrepresentations alleged to have been made by ReelTime's directors and executive officers which were said to have induced Maylord to advance the sum of $1M. The letter made it clear that Maylord claimed to have a number of causes of action against ReelTime, but it expressly referred to a claim for misleading and deceptive conduct under the Trade Practices Act 1974 (Cth). 15 Enclosed with Mr Fasha's letter was a statement by Mr P. Batterham, the managing director of Maylord, amplifying and particularising the claim summarised in Mr Fasha's letter. The statement is twelve pages in length. It contains full particulars of the misrepresentations referred to in Mr Fasha's letter, stating dates of discussions, who participated, the substance of the words used in the representations, and who on behalf of ReelTime said those words to whom on behalf of Maylord. Exhibited to the statement was a folder of documents, containing 32 tabs, to which precise reference was given in the statement. The statement was virtually in the form of an affidavit and had been prepared with care and attention to detail. 16 On 7 May 2008, the administrators' solicitor, Mr Christensen, wrote to Mr Fasha requesting further particulars of the misrepresentations which Mr Fasha had set out and summarised in his 6 May letter. On the same day, Mr Fasha responded: "The particulars you have requested were all provided to your client yesterday in the Statement and Chronology of Mr Peter Batterham, (managing director of Maylord Equity Management Pty Ltd) dated 6 May 2008 and the accompanying Exhibit PB-1.

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The information we have provided your client is complete and more than adequate in answer to its letter of 16 April 2008." 19 Mr Fasha was entirely justified in saying that he did not understand how Mr Christensen could say that the particulars of the misrepresentations set out in Mr Batterham's statement and in the attached exhibits were "not clear" . Mr Christensen did not explain what was unclear in the very precise and detailed particulars which Mr Batterham had provided. I agree with Mr Fasha's statement that the particulars which had already been provided were "complete and more than adequate" . 20 On 9 May, Mr Christensen wrote to Mr Fasha as follows: "In respect of your client's claim that it advanced a total of $1 million to the Company in reliance on false and misleading representations (as set out in paragraphs (a) to (g) on the second page of your facsimile dated 6 May 2008) ( Representations ) made by representatives of the Company to your client: The claim is a mere assertion in that there is no evidence contained in the statement and chronology of Peter Batterham dated 6 May 2008 (including the exhibits thereto) ( Statement ) which supports the making of any of the Representations prior to your client making any of the advances. Our client therefore rejects your client's claim." 21 I cannot understand how the administrators and Mr Christensen could take such a position in good faith. The administrators' rejection of ReelTime's claim is founded upon the statement in Mr Christensen's letter that "there is no evidence contained in the statement of Mr Batterham …which supports the making of the representations prior to [Maylord] making any of the advances" . However, Mr Batterham's statement is itself the evidence which would be given if Maylord were required to prove its claim in litigation. The statement recounts specific discussions which Mr Batterham had with directors of ReelTime: on 27 June 2007 with Mr Karantzis, on 1 July 2007 with Mr Mackinlay, and on 4 July 2007 with Mr Karantzis and Mr Roberts. It sets out, in direct speech, what was said on those occasions by the directors and sets out the reliance which Mr Batterham placed on what was said before the first of Maylord's advances was made to ReelTime on 13 July 2007. One might rhetorically ask what better "evidence" could Maylord give of its claim for the purpose of estimating the value of the claim for voting purposes at the creditors' meeting to be held on 9 May. 22 Mr Christensen's letter of 9 May continued: "In respect of your client's claim that it converted its note in reliance on the Representations made by representatives of the Company to your client: For the purpose of voting at tomorrow's meeting (and for that purpose only), on the basis of information contained in the Statement, our client is prepared to accept that your client's claim is something more than mere assertion. However, there is no evidence to support your client's valuation of the damages payable by the Company in respect of that claim at $1 million. The proper quantum of damages must be assessed by asking if your client had not converted its loan to shares, then what was the Company's capacity to repay the loan at that time?

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I will return to examine this reasoning shortly. 23 A meeting of creditors of ReelTime was held in Perth on 9 May. One of the administrators, Mr Martin Jones, took the chair. Present in person were the representatives of ten creditors. Mr Jones held proxies from two other creditors. 24 Before the meeting opened, Mr Jones ruled on the admission of proxies. Ninhey Holdings Pty Ltd had valued its claim at $245,000 for outstanding rent pursuant to the provisions of a lease. Mr Jones rejected the claim and valued it for voting purposes at $1 on the ground that he had not seen a copy of the lease. That is not surprising because the administrators had not been able to obtain any books and records of ReelTime, despite sporadic attempts to do so. I will return to Mr Jones' endeavours to obtain the books and records shortly. 25 What is surprising is that Mr Jones admitted Ninhey's claim for making good the leased premises in an amount $60,000 - a claim which could only arise if there was a lease - yet rejected a claim for rental under the lease because he had no evidence that there was a lease. This inconsistency on Mr Jones' part is disquieting. It is the first of several disquieting actions on Mr Jones' part during the course of the meeting. 26 Mr Jones valued Maylord's claim for $1M at $10,000, on the basis of legal advice which he had received. That is the second disquieting action by Mr Jones. I do not understand how such a position could have been taken in good faith: see paragraphs 49 to 55. Both Ninhey and Maylord protested. 27 Mr Jones then opened the meeting. He explained that the purpose of the meeting was to enable creditors to discuss and consider whether ReelTime should enter into a DOCA proposed by Albion Capital Partners, or whether it should be wound up. Mr Jones tabled a Supplementary Report to creditors under s 439A(4)(a) dated 1 May 2008. 28 Mr Batterham, who was Maylord's representative at the meeting, sought to move a motion to adjourn the meeting. Ninhey's representative, and the representatives of two other creditors, supported that motion. Clearly, Mr Jones was reluctant to accept the motion for adjournment. He adjourned the meeting for five minutes to consult his solicitor. 29 Upon resumption of the meeting, Mr Jones accepted the motion for adjournment but ruled that any representative who had a special, rather than a general, proxy from a creditor was disqualified from voting on the adjournment resolution. Maylord's representative held a special proxy in that it specified that the representative was to vote against the resolution approving a DOCA. 30 Mr Jones explained to creditors his reasons for excluding Maylord from voting on the adjournment resolution thus: "According to the Corporations Act 2001, a special proxy is only entitled to vote on the specific items raised on that proxy. Only general proxies are allowed to vote on items that are called in the meeting that aren't called for on the proxy." 31 Mr Jones' ruling that Maylord was not entitled to vote on the adjournment motion was clearly wrong. 32 Maylord had delivered a proxy in accordance with Form 532, pursuant to Reg 5.6.29 of the Corporations Regulations 2001 (Cth) ("CR"). The proxy form set out seven particular resolutions and specified how the proxy, Mr Batterham, was to vote in respect of each of them. None of the specified resolutions concerned a resolution for adjournment of the meeting. 33 CR 5.6.28(2) relevantly provides: " Appointment of proxies … Subject to … regulation 5.6.30, a proxy appointed under this regulation has the same right to speak and vote at the meeting as the person who appointed the proxy."

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CR 5.6.30 provides: " Instruments of proxy An instrument appointing a proxy may specify the manner in which the proxy is to vote on a particular resolution, and the proxy is not entitled to vote on the resolution except as specified in the instrument." 34 It is clear that CR 5.6.30 restricts the proxy's right to vote only in respect of a particular resolution specified in the proxy form. If a resolution is moved at a meeting which is not one of those specified in the proxy form, CR 5.6.28(2) gives the proxy the same right to vote on that resolution as his or her appointor. In this regard, the Regulations merely reflect the general law of agency. 35 A creditor present in person at the meeting on 9 May 2008 could have spoken and voted as he or she chose on a motion without notice for adjournment of the meeting. There being no specification in Maylord's proxy as to how a vote on an adjournment resolution must be exercised, Maylord's proxy was, by virtue of CR 5.6.28(2), as entitled to vote on such a resolution as Maylord itself. 36 It is difficult to understand how anyone acquainted with the Corporations Regulations governing creditors' meeting - particularly, CR 5.6.28(2) and CR 5.6.30 - could rule, as Mr Jones did, that Maylord's proxy could not vote on the motion for adjournment. This is the third disquieting action by Mr Jones at the meeting. 37 The votes recorded on the adjournment motion were as follows: three in favour, three against. The motion was declared lost. In the absence of a poll, the resolution had to be decided on the voices: CR 5.6.19(1), 5.6.21(2). The minutes do not record that a poll was demanded. However, the minutes record the name of each creditor voting on the resolution and the value of the vote of such creditor. That information would have been necessary only if a poll was demanded. A poll may be demanded by the chairperson: CR 5.6.19(1)(a). The minutes do not record that Mr Jones "demanded" a poll but I think that it may be assumed that it was Mr Jones who required that information relevant only to the taking of a poll be recorded, so that it must be inferred that he exercised his right to require a poll. 38 If the adjournment resolution was decided on the voices, the resolution would have been carried by a majority of four to three if Maylord's proxy had been permitted to vote, as he was entitled to do. If the resolution was decided on a poll, and if Maylord's proxy had been permitted to vote in respect of an amount of $1M, the adjournment resolution would have, likewise, been carried, by a majority in number and value: CR 5.6.21(2). In either case, Mr Jones would then have been compelled to adjourn the meeting, in accordance with CR 5.6.18(1)(a). 39 Mr Jones continued with the meeting, despite the protests of Maylord's and Ninhey's proxies. A DOCA was proposed by Mr Mackinlay as proxy for Mackinlay Solicitors and for the Barralong Trust. The resolution was seconded by Mr Mann, as proxy for Viaticus Capital. Mr Mackinlay was a director of ReelTime and the principal of Mackinlay Solicitors, whose debt had been admitted valued at $42,930. Mr Mackinlay had a financial interest in a company called Movies Online Ltd ("MOL") which, Mr Jones conceded, was to receive a substantial number of shares in ReelTime pursuant to the proposed DOCA. By virtue of his interest in MOL, Mr Jones conceded, Mr Mackinlay and MOL had a real interest in the DOCA being approved: T12.22-13.15. That interest was, clearly, different from the interest of ordinary unsecured creditors such as Maylord and Ninhey. 40 Mr Jones also conceded in cross examination that if the DOCA were approved, the prospect of making an insolvent trading claim against the directors of ReelTime, including Mr Mackinlay, was diminished greatly. Such a claim had been foreshadowed by Maylord in its correspondence to ReelTime's solicitors. It is a fair assumption that Mr Mackinlay would not be in favour of proceeding down a path which could lead to an insolvent trading claim against him. 41 It is a fair assumption that Mr Mackinlay had some financial interest in the Barralong Trust. The Barralong Trust had been admitted to vote in an amount of $19,016.50. 42 Mr Joshua Mann was present at the creditors' meeting representing Albion Capital, which was promoting the DOCA. He attended the meeting, however, as the proxy of Viaticus Capital. That company had, shortly before the meeting, purchased the debt of a creditor of ReelTime, obviously to enable it to vote at the meeting. Mr Jones conceded this to be so and said that he understood Viaticus Capital was "related or somehow part of" the Albion group of companies. He conceded that Viaticus Capital had a financial interest in having the DOCA approved. The debt of Viaticus Capital had been admitted in the sum of $110,082.50. 43 Voting in favour of the resolution approving entry into the DOCA were six creditors: Claim valued at Mackinlay Solicitors, represented by Mr Mackinlay $42,930.03 Viaticus Capital, represented by Mr Mann $110,082.50 The Barralong Trust, represented by Mr Mackinlay $19,016.50 ALUImage, represented by Chairman $73,544.64 Blake Dawson, represented by Chairman $7,560.69 Todd Richards, represented by Chairman $ 10,000.00 Total $ 263,134.36

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if the debt conversion was induced by misrepresentation, the damage suffered by Maylord was the conversion of a worthless debt into worthless shares, i.e. Maylord lost nothing and its claim for misrepresentation, and consequently its entitlement to vote as a creditor, is valued at nil. 49 If ever there was an example of specious reasoning, this is it. 50 The process begins with an incorrect statement of fact. It is said in Mr Christensen's letter that there is "no evidence" in Mr Batterham's statement which supports the making of any misrepresentations prior to the advances by Maylord. As I have pointed out in para 21 above, that statement is simply wrong. There was ample and careful evidence supporting the claim in Mr Batterham's statement provided on 6 May 2008. If the administrators did not believe Mr Batterham, or thought that the facts which he asserted, even if correct, did not found a claim in law, they could have said so. They did not. Their assertion of "no evidence" was manifestly untenable. 51 The reasoning proceeds to treat Maylord's claim as if it were "damages for misrepresentation or nothing". However, Maylord's solicitor had, on 18 April 2008, sent to the administrators a copy of his letter to ReelTime of 5 March 2008, in which Maylord had made it plain that it sought "to set aside the Transaction" , which was defined to mean both the initial loan and the conversion into share capital - and seek damages. Damages were not an alternative remedy, but a remedy in addition to an order setting aside. The Court can grant both remedies in a claim under the Trade Practices Act ("TPA") in an appropriate case, as s 87(1) TPA makes plain. 52 Maylord's claim against ReelTime was, therefore, primarily to set aside the loan or its conversion into shares. If it succeeded in setting aside the loan, it would be entitled to ask for an order for repayment of not less than $1M. If it did not succeed in setting aside the loan but succeeded in setting aside the conversion, it would be restored to its position immediately prior to the conversion, i.e. it would be a creditor for a liquidated sum of at least $1M. That claim, in either of its limbs, must be valued at $1M 53 There could have been no basis for the administrators to think that Maylord was abandoning its claim to set aside both the loan and the loan conversion and that it was merely seeking damages for misrepresentation in inducing the loan conversion. Maylord's informal proof of debt, provided to the administrators for voting at the creditors' meeting, valued its claim at $1M by referring back to its solicitor's letter of 6 May to the administrators. That letter made quite clear, by reference back to the letter of 5 March, that Maylord would claim relief under the Trade Practices Act in respect of both the loan transaction and the conversion transaction. 54 It was not permissible to value Maylord's claim to set aside the loan transaction and to be paid the sum of $1M, or to set aside the loan conversion and be restored to its position as an unsecured lender of $1M, by reference to what dividend those claims would receive in an insolvent administration. For the purpose of voting at a creditors' meeting, a claim is valued or estimated by reference to what the creditor would have received if the company were solvent at the time that the claim is to be paid. That is the basis on which the administrators valued all claims other than Maylord's claim. 55 The administrators have valued Maylord's claim for $1M at nil by a process of reasoning which began with a wrong assertion that Maylord had provided "no evidence" , proceeded by misstating the nature of Maylord's claim and concluded by applying the wrong basis of assessment. I find it difficult to understand how the administrators and their legal advisers could have taken that position in good faith. Surely common sense must have suggested that it cannot be right that if a company borrows $1M which it cannot repay and then unlawfully deceives the lender into converting the loan into shares, the lender is left without recourse or remedy because the law says it has suffered no loss. Two wrongs do not usually make a right. 56 Maylord's claim under the Trade Practices Act is not a claim for simple contract debt. It is a claim which depends upon Maylord proving its case in Court. It is, therefore, a claim which must be estimated for voting purposes, pursuant to CR 5.6.23(2). Mr Stack urges that that regulation requires only that Mr Jones, as chairperson of the creditors' meeting, shall have made a "just estimate" of Maylord's claim. He refers to the following passage from the judgment of Barrett J in Selim v McGrath [2003] NSWSC 927; (2003) 47 ACSR 537, at [103]: "It is here that a difference between proof in a winding up and proof for Pt 5.3A voting must be noted. Any estimate of value undertaken pursuant to reg 5.6.23(2) - as well as any decision under reg 5.6.26(1) to admit or reject - will, of necessity, be of a somewhat summary nature. A decision of the latter kind, as I have said, can only be undertaken by the chairperson, which means that the meeting will either have started or be about to start. The same will be true of any reg 5.6.23(2) estimate, if, as I consider likely, the correct view is that the function of making such an estimate is a function to be performed by the chairperson. Even if it is a function of the administrator as such, the fact that it is a function that the legislation envisages only in relation to a meeting means that it will be undertaken, at the earliest, a short time before the time at which the meeting is to start. The situation is accordingly not one in which extensive debate and deliberation will be possible. As far as the reg 5.6.26 function of admitting or rejecting is concerned, this is borne out by the fact that there is express provision acknowledging that the chairperson may be in doubt as to the correct course to take. In that instance, it is not expected that the chairperson will resolve the doubt. So too, it seems to me, reg 5.6.23, in requiring a just estimate of value to be made, does not contemplate that the chairperson or administrator will undertake any detailed inquiry. He or she will do the best that can be done by reference to the factual material the claimant furnishes, view in the total context with which the decision-maker is dealing. If that material provides reasonable grounds, within that context, for ascribing a particular figure to the particular claim, the chairperson or administrator is no doubt expected to accept that position. If, on the other hand, there is little or no material from which a conclusion as to value can be drawn, a just estimate may be zero or perhaps the nominal amount of $1, assuming that admission is warranted at all." 57 With respect, I agree entirely in what his Honour says, in so far as it applies to the situation, often encountered, in which the chairperson has to make a decision "on the run" as to what is a just estimate of the value of a claim for voting purposes. Not infrequently, a creditor or its proxy arrives at a creditors' meeting, bringing with him or her particulars of the claim which the chairperson, as administrator, has not previously seen. Whether, in such a case, the chairperson has made a "just estimate" depends upon whether the estimate falls within a range of estimates that a reasonable person could have arrived at, given the information provided and the time allowed to consider it. 58 It is important to remember that CR 5.6.23(2) requires "a just estimate" , not "just an estimate" in the sense that any stab at a figure will do. An estimate which is "just" has two elements, one subject and one objective. It must be an estimate arrived at by the chairperson as a result of a genuine endeavour on his or her part to "do the best that can be done by reference to the factual material the claimant furnishes" , as Barrett J says in the passage quoted above. But an estimate made even after such an endeavour is not just if it is plainly unreasonable or wrong, despite the chairperson's honest belief to the contrary. 59 For the reasons which I have explained above, I have considerable disquiet as to how Mr Jones and his legal advisers could have estimated the value of Maylord's claim at nil or a nominal $10,000, if they had made a genuine endeavour to do the best they could with the factual information which Maylord had provided to them three days earlier. My disquiet is increased by the circumstances in which Mr Jones rejected Maylord's entitlement to vote on the adjournment motion. As I have noted, his ruling was founded upon a manifest misapplication of CR 5.6.28(2) and CR 5.6.30. However, I proceed on the basis that the estimate made by Mr Jones of the value of Maylord's claim was not "just" within the meaning of CR 5.6.23(2) because, viewed objectively, it was clearly wrong. 60 Neither the Corporations Act nor the Corporations Regulations makes the decision of a chairperson under CR 5.6.23(2) as to a "just estimate" unimpeachable. CR 5.6.26 relevantly provides: "(1) The chairperson of a meeting has power to admit or reject a proof of debt or claim for the purposes of voting.

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"Claim" as distinct from "proof of debt" must be understood in the sense in which it is used in CR 5.6.23(1)(b) and (2), i.e. as including an unliquidated claim supported by particulars lodged with the chairperson of the creditors' meeting in accordance with CR 5.6.23(1)(b)(i). 61 It may be argued that if the chairperson admits a claim to vote for an amount less than that for which the creditor seeks to vote, the claim has not been "rejected" within the meaning of CR 5.6.26(3). I do not think that this is correct. It would produce absurdity if a creditor could appeal under CR 5.6.26(3) if its claim for $1M were rejected outright, but could not appeal if the claims were admitted to vote with a value estimated at $1. The Regulations as to the conduct of creditors' meetings should be given a pragmatic construction, not one which would defeat their utility. If a creditor lodges a claim in accordance with CR 5.6.23(1)(b) which the creditor values at a certain sum, then that claim is rejected, in a quite literal sense, if the chairperson admits a creditor's claim for a less amount. 62 However, even if there were no express and direct right of appeal from an estimate of the value of a claim made by a chairperson under CR 5.6.23(2), the Court could, clearly enough, take into account for the purposes of an application under CA s 445D(1) the fact that a DOCA had been approved by a creditors' meeting as a result of a creditor's claim being estimated by the chairperson "unjustly" . The discretion to terminate a DOCA conferred on the Court under s 445D(1) is very wide. In my opinion, where a resolution approving a DOCA could not have been passed under CA s 439C but for the chairperson having made an "unjust" estimation of the value of a creditor's claim, a strong prima facie basis would be made out for the termination of the DOCA on the ground that effect could not be given to it without injustice: s 445D(1)(e). 63 Of course, merely to establish one or more of the grounds for termination of a DOCA cannot be decisive of an application under s 445D(1). There are always discretionary facts to be taken into account. For example, the creditor whose vote would have defeated the DOCA may have some particular motive or interest which is contrary to the interests of the creditors as a whole. If the Court would have validated a DOCA on any ground available in an application under CA s 445G(3) or under the wide powers conferred by CA s 447A, then it is unlikely that the Court would terminate the DOCA under s 445D on the ground of the invalidating factor. 64 The general observations of Barrett J in Selim v McGrath do not assist the administrators in the particular circumstances of this case. Mr Jones was not compelled to estimate the value of Maylord's claim "on the run" . He had been given detailed particulars supporting Maylord's claim on 18 April and 6 May 2008. The nature of the claim had been explained and the evidence in support of it had been provided in the letters of those dates. By the time of the creditors' meeting Mr Jones had had the benefit of considered legal advice in writing. In those circumstances, Mr Jones' estimate cannot be treated with the same latitude which may be afforded to an estimate made by a chairperson placed in the typical situation described in Selim v McGrath . 65 If Mr Jones had not, in clear error, prevented Maylord's proxy from voting on the adjournment motion at the creditors' meeting of 9 May, and if he had permitted Maylord to vote on that motion in respect of a claim for $1M, as he should have done, the motion for adjournment would have been carried and the Court would not now be determining this application. Any business conducted after the adjournment motion (which would have been carried) would be invalid: CR 5.6.18(18)(a). Even if the meeting had validly proceeded with further business, and if Mr Jones had estimated the value of Maylord's claim as he should have done, the resolution for approval of the DOCA would have been lost unless Mr Jones had, in fact, exercised his casting vote in favour: see paragraph 44. He did not do so because he did not think that it was necessary. 66 In summary, having regard to the following findings, namely:

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71 Mr Stack submitted that the interests of the creditors favoured approval of the DOCA rather than liquidation. Under the DOCA, he said, the creditors would have had a fund for distribution whereas in a liquidation the creditors would receive nothing. 72 Mr Jones explained in cross examination that in his view the only asset of ReelTime worth anything significant was its status as a public listed company. He said that he had explored the value of the "shell" and had obtained from Albion Capital what he considered to be the best offer. The proceeds of that sale would form the fund under the DOCA. 73 I accept that the "shell" of ReelTime has a market value and that Mr Jones has taken reasonable steps to obtain the best offer for it which was available. I do not accept, however, that Mr Jones had sufficiently investigated ReelTime's affairs to justify him in his conclusion that a liquidation would produce nothing for creditors. 74 First, as the administrators repeatedly said in their s 439A Report of 11 April 2008, they had not been able to obtain the books and records of ReelTime. Mr Jones' explanation was that ReelTime was a holding company and the operations of the group were conducted by RI, which was under administration. He said that ReelTime did not have its own books and records and that he had tried on a number of occasions to get access to the books and records of RI, without success. All that Mr Jones was able to obtain were some accounting record extracts, including balance sheets for ReelTime as at 30 June 2006 and 30 June 2007. Mr Jones conceded that the value of the assets of ReelTime was dependent on the value of its wholly owned subsidiary, but he was unable to get meaningful information as to the value of the subsidiary: T9.4-.47. 75 An important consideration in ascertaining what creditors might get in a liquidation of ReelTime, rather than under the DOCA, is whether a liquidator might be able to bring an insolvent trading claim against directors under CA s 588M. Maylord clearly foreshadowed such a claim to the administrators. In assessing whether such a claim was possible and worthwhile, one would need to form some view about when ReelTime became insolvent and whether the directors had sufficient assets to satisfy a judgment. 76 Mr Jones said in cross examination that while he had formed the view that ReelTime was insolvent at the time the administration commenced, he could not form a view as to when it became insolvent because he had had no success in obtaining any meaningful financial records: T10.35. However, what was clear from the 30 June 2007 balance sheet of ReelTime was that the company then had borrowings of $1,167,000. Mr Jones seemed prepared to accept at face value the declaration of solvency made by the directors of ReelTime in the June 2007 balance sheet, even though that declaration was conditional upon ReelTime being able to recover its loan to, and investment in, its subsidiary, RI: T16.4-.29. 77 As to the capacity of the directors to satisfy a judgment obtained against them in an insolvent trading claim, the administrators said in their s 439A Report: "Various searches conducted by me do not disclose ownership by the directors of any unencumbered: Real property; Motor vehicles; or Shares or investments.

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I have not identified any professional indemnity or other insurance policy held by the directors that may respond to any claims brought by a Liquidator at this date." 78 It seemed a little odd that five directors and the secretary of a public listed company had, between them, no unencumbered assets. One of the directors, Mr Mackinlay, was the principal of a firm of solicitors. Mr Jones said in cross examination that he made this statement in the Report as to the directors' assets "just from public searches" . The searches were in the Land Titles Office and in ASIC records under the directors' names. They were the only enquiries Mr Jones had made. He did not even ask the directors for any information about their financial position. I infer also that he did not ask them whether they had Directors' and Officers' Insurance. Mr Jones conceded that it was fair to say that he knew "virtually nothing at all about the assets and liabilities of the six company officers" : T26.50-27.2. 79 In my opinion, the statement in the s 439A Report as to the capacity of the directors to satisfy a judgment debt in an insolvent trading claim was founded upon a perfunctory and inadequate investigation by the administrators. 80 I conclude that the prospects of an insolvent trading claim against the directors have not been properly investigated and put before the creditors for consideration. 81 Mr Jones justified his view that a DOCA was in the best interests of the creditors of ReelTime by the following process: the unsecured creditors of ReelTime amounted to $400,000, which would be the maximum amount recoverable as compensation in an insolvent trading claim under CA s 588M; under the DOCA the sale of the ReelTime "shell" would produce a fund for creditors of $550,000, more than sufficient to pay their claims in full; therefore, even if it were possible to bring a claim against the directors under s 588M, there would be no point in doing so. 82 The logic of this reasoning is impeccable - apart from the fact that it entirely ignores Maylord's claim for $1M. If Maylord established that claim, the amount of compensation sought from the directors in proceedings under s 588M would be at least $1.4M, not $400,000. 83 In the light of all these considerations, I am far from satisfied that approval of the DOCA would be in the interests of the creditors of ReelTime as a whole.

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84 The creditors' meeting was held on 9 May 2008, the DOCA was executed on 30 May 2008, and the Originating Process was filed on 28 July 2008, some two months later. Mr Stack submitted that I should not grant any relief because Maylord had waited too long before bringing this application. 85 There is no hard and fast rule as to what period of delay in commencing proceedings for an order under CA s 445G or s 445D will disqualify an applicant from obtaining relief. The discretion whether to withhold relief for delay is exercised principally by reference to what has occurred between execution of the DOCA and the commencement of proceedings. Questions of public interest also must be considered: Emanuele v Australian Securities Commission (1995) 63 FCR 54. A short delay may be sufficient to disqualify an applicant if it has stood by while irreversible consequences are set in train after the execution of the DOCA. A long period of delay may not disqualify an applicant where the DOCA has been procured by deception or deliberate misconduct or where the public interest requires that substantial corporate wrongdoing not be swept under the carpet by a DOCA which restores a company to the marketplace: see the instructive review of the authorities by Campbell J (as his Honour then was) in Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd [2005] NSWSC 1235, at [270]-[291]; (2005) 226 ALR 510. 86 In the present case, nothing had been done to implement the DOCA between its execution and the commencement of these proceedings. Indeed, the DOCA was still subject to a condition - the raising of capital - which had not been fulfilled by the time that the matter was called on for trial. Mr Stack could not point to any material prejudice caused to anyone by the commencement of these proceedings two months after execution of the Deed. 87 Having regard to the seriousness of the errors made by the administrators which resulted in the resolution for approval of the DOCA being passed, and having regard to the fact that the DOCA had not yet been implemented, I had no difficulty in finding that Maylord was not guilty of such delay in bringing these proceedings as should deny it relief.

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