Plaintiff v Defendants

TRUSTS - whether machine held on trust - whether requisite intention - whether financial contribution made in respect of machine

1 In late 2008, Fiona Xie, Todd Anderson and Guo Qin Xin decided to start a business importing plastic film. When they were unable to find a suitable supplier of plastic, they decided instead to purchase a film making machine and to manufacture the plastic film themselves. Unfortunately, in late 2009/early 2010, Mr Anderson and Mr Xin fell out with Ms Xie. Although some progress had been made with the business, it was still in its start up phase when the dispute began. No plastic film has been manufactured let alone sold.

2 The business structure that Ms Xie, Mr Anderson and Mr Xin chose for the business was a unit trust with a corporate trustee, XYZ Packaging Pty Ltd. Originally, Mr Anderson and Mr Xin wanted to conceal their involvement in the business. Mr Anderson's reason for this was that some of XYZ's likely competitors were customers of another business that he operated. Mr Xin wanted to hide his involvement from his employer. In those circumstances, for most of the relevant time, Ms Xie was the sole director of XYZ and shareholder formally recorded on the register maintained by the Australian Securities and Investments Commission ("ASIC"). However, Mr Anderson and Mr Xin contend that, although they were not registered as directors, it was always agreed that the three of them would act as directors and control the business together. By early 2010, Ms Xie had contributed $500,000 to the business and Rhyll Investments Pty Ltd (a company controlled by Mr Anderson) had also made a substantial financial contribution though the exact amount is in dispute.

3 On 19 February 2010 while still in its start up phase, XYZ closed its doors. Essentially it ceased all commercial activity before production of the plastic film began. In early March 2010, the company's accountant, Nicholas Zoch, lodged notices with ASIC registering Mr Anderson and Mr Xin as directors of XYZ. Mr Anderson and Mr Xin then purported to call a meeting of directors for 12 March 2010. Ms Xie did not attend the meeting, but Mr Anderson and Mr Xin went ahead with it. They purported to resolve that the company was in their opinion, insolvent or likely to become insolvent and appointed an administrator, Glenn Crisp. The resolution as to insolvency was in large part based on the view that Rhyll was owed a significant debt.

4 Ms Xie says that Mr Anderson and Mr Xin were not directors and therefore were not entitled to appoint the administrator. She also disputes the amount XYZ owed to Rhyll and says that in any event there was no debt due to Rhyll on 12 March 2010 and XYZ was not insolvent at that date.

5 According to Mr Anderson and Mr Xin, before 12 March 2010, Ms Xie resolved that they be appointed as directors of XYZ. Their case was that the resolution is contained in a unit holders agreement signed by Ms Xie in June 2009. Ms Xie denies signing that agreement. Alternatively, Mr Anderson and Mr Xin contend that if Ms Xie did not resolve to appoint them as directors, then they have always been de facto directors. In either case, they say that they were entitled to convene and hold the meeting on 12 March 2010 and pass resolutions as to the insolvency of the company and the appointment of the administrator.

6 There is also a dispute as to ownership of the film making machine that was to be used in the business. The machine was imported from China. It is worth more than $1 million and was purchased by Olympic Polymers Pty Ltd (another company controlled by Mr Anderson) with the assistance of finance from the Commonwealth Bank. Ms Xie contends that Olympic holds the machine on trust for XYZ. Olympic disputes this.

7 I have concluded that Ms Xie did not resolve to appoint Mr Anderson and Mr Xin as directors of XYZ, and they were not formal directors. However, I have also concluded that Mr Anderson and Mr Xin were de facto directors from the time that XYZ was incorporated. In my view, they were not entitled as de facto directors to pass the resolutions as to insolvency and for the appointment of the administrator. However, I have reached the conclusion that the administration should continue. To give effect to this, orders should be made under s 447A of the Corporations Act 2001 (Cth). That section gives the Court power to make orders as to how Part 5.3A of the Act (being the part that deals with administrations and deeds of company arrangement) is to operate in respect of a company.

8 I have also concluded that the machine is not held on trust by Olympic for XYZ.

9 My reasons for these conclusions are set out below.

10 There are two proceedings. The first proceeding was commenced by originating process by Ms Xie on 9 April 2010.[1] The defendants to that proceeding are Mr Crisp, Mr Anderson, Mr Xin and ASIC. The originating process was amended at trial. Ms Xie seeks in the first proceeding a declaration under s 447C(2) of the Corporations Act that the appointment of Mr Crisp under the directorship of Mr Anderson and Mr Xin was invalid on the grounds that:

(a) Mr Anderson and Mr Xin were not validly appointed as directors of XYZ;

(b) XYZ was not insolvent or likely to become insolvent on 12 March 2010 and therefore Mr Anderson and Mr Xin ought not to have resolved that the company was insolvent or likely to become insolvent within a reasonable time;

(c) Mr Anderson should not have voted at the meeting on 12 March 2010 as he had a conflict between the interests of XYZ and the interests of Olympic and/or Rhyll;

(d) Mr Anderson and Mr Xin were not directors by right nor de facto on 12 March 2010 and were not entitled to convene or pass resolutions at the meeting;

(e) proper notice of the meeting had not been given to Ms Xie;

(f) if Mr Anderson and Mr Xin were de facto directors of XYZ on 12 March 2010, they were not entitled to resolve as to the insolvency of the company nor the appointment of an administrator.

11 Ms Xie also sought an injunction to restrain Mr Crisp as administrator and sought declarations that Mr Anderson and Mr Xin were not validly appointed as directors of XYZ. She also sought ancillary relief under s 1324(1) of the Corporations Act for rectification of the ASIC register. ASIC did not take part in the trial.

12 At the commencement of the trial, counsel informed me that the dispute with the administrator, Mr Crisp, had been resolved on the basis that he would not take any active part in the trial but would abide by the Court's decision. Mr Crisp effectively became a caretaker administrator until judgment.

13 In the first proceeding, Mr Crisp had sought orders pursuant to s447A of the Corporations Act confirming that his appointment was valid. With Mr Crisp's withdrawal from active participation in the trial, Mr Anderson made application for the same relief under s 447A in respect of the appointment of the administrator.

14 Separate proceedings,[2] were commenced by Mr Anderson, Mr Xin, Rhyll, Ms Hui Fen Shi, Tanom Pty Ltd and Olympic against Ms Xie and XYZ. Ms Shi is Mr Xin's wife. She was a director and secretary of XYZ for some months and she is also one of the unit holders in the trust of which XYZ is the trustee. Tanom Pty Ltd sued as trustee of the JT Anderson Family Trust. Tanom is another company associated with Mr Anderson.

15 The plaintiffs in the second proceeding alleged that there was a joint venture agreement between Mr Anderson, Mr Xin and Ms Xie under which they agreed:

(a) they would together establish and conduct a business which would manufacture and supply plastic film;

(b) XYZ would be the entity which would establish and conduct the business;

(c) they would all act as directors of XYZ;

(d) the capital and income entitlements in the business would be 51% to Mr Anderson (to be held by Rhyll as trustee of the Rhyll Discretionary Trust[3]), 20% to Mr Xin (to be held by Ms Shi as trustee of the Cheng Lin Family Trust) and 29% to Ms Xie (to be held by her as trustee of the Hankui Trust);

(e) XYZ would act as trustee of the Fiona Xie Family Trust which would be a unit trust comprising 100 units to be held in accordance with the entitlements set out in the last paragraph above.

16 It is pleaded that since about 21 December 2009, Mr Anderson and Mr Xin on the one hand and Ms Xie on the other hand have been unable to work together in the business and on 19 February 2010, prior to commencing trading, XYZ ceased all activity in relation to setting up the business. The plaintiffs in the second proceeding allege that the objective of the joint venturers has entirely failed and cannot be achieved and XYZ has been insolvent since at least 12 March 2010. The plaintiffs (other than Olympic) seek orders for the appointment of a receiver of the assets and undertaking of XYZ for the purpose of disposing of its assets, paying its debts to the maximum extent possible, and distributing any surplus to the unit holders in the trust.

17 In the second proceeding, Olympic seeks a declaration that it is the owner of, and entitled to possession of, the machine. It seeks an order for delivery up. Relief is sought in the alternative for judicial sale of the machine together with a declaration that Olympic holds the machine on trust for, and is entitled to be indemnified by, XYZ and to a lien or charge over the machine to secure that right of indemnity.

18 Ms Xie denies the joint venture and denies that Olympic is the owner of the machine.

20 The two proceedings raised the following issues:

(a) Was a unit holders agreement executed by Ms Xie in June 2009, and if so:

(i) in what capacity did she execute it?

(ii) is it binding on any and which parties?

(iii) did it entitle the appointment of Mr Anderson and Mr Xin as directors of XYZ?

(iv) did it constitute, in effect, a resolution of Ms Xie to appoint Mr Anderson and Mr Xin as directors of XYZ?

(b) Were Mr Anderson and Mr Xin:

(i) validly appointed as directors on 5 March 2010?

(ii) de facto directors on 12 March 2010?

(c) If Mr Anderson and Mr Xin were de facto directors, were they entitled to convene a meeting of XYZ and appoint an administrator?

(d) Did Mr Anderson and Mr Xin form the opinion on 12 March 2010 that XYZ was insolvent or likely to become insolvent at some future time, and was XYZ insolvent or likely to become insolvent on 12 March 2010?

(e) Were Rhyll, Olympic and Ms Xie creditors of XYZ on 12 March 2010 and, if so, for what amounts?

(f) Was the 12 March 2010 meeting properly convened and held?

(g) If there was a defect in the appointment of Mr Crisp as administrator, should the Court exercise its powers under s 447A of the Corporations Act to validate the appointment?

(h) Did Ms Xie, Mr Anderson and Mr Xin enter into a joint venture agreement?

(i) If they did:

(i) has any party to the joint venture agreement breached its terms, and if so, with what consequence?

(ii) has the object of the joint venture agreement failed, and if so, with what consequence?

(j) Should a receiver be appointed by the Court to the assets and undertaking of XYZ?

(k) Is the machine the property of:

(i) XYZ, subject to XYZ being liable to indemnify or compensate Olympic for its full cost and interest paid and payable to Commonwealth Bank of Australia in relation to funds provided for its purchase?

(ii) Olympic?

21 Ms Xie, Mr Anderson and Mr Xin are all involved in the plastics industry. Mr Anderson is a director of Olympic Polymers Pty Ltd which operates a plastic recycling business. Mr Xin has worked in the plastic film manufacturing industry for more than 20 years. Mr Xin currently works for Olympic. In the past, Mr Xin was the production manager for a plastic film manufacturer which was a client of Olympic. It was through this connection that he first met Mr Anderson. Ms Xie works for a company that exports and imports low grade scrap plastic to and from China. That company was also a customer of Olympic. Ms Xie and Mr Anderson had known one another for a number of years.

22 In about November 2008, Mr Anderson and Mr Xin discussed starting a business together. The idea was that the business would import plastic from China. They discussed their idea with Mr Peter Egonidis (who is Olympic's operations manager) and also with Ms Xie. At first Mr Egonidis was to be involved in the business but, in the end, it was only Mr Anderson, Mr Xin and Ms Xie who decided to start up the business together. Mr Anderson gave instructions for the establishment of a company to operate the business to his accountant, Mr Zoch, at HWZ Partners Pty Ltd. Mr Zoch had acted for Mr Anderson and his associated entities since about May 2007. Mr Zoch had not had any dealings with Mr Xin or Ms Xie previously.

23 The company, XYZ Packaging Pty Ltd, was formed in December 2008 to operate the business. Ms Shi and Ms Xie were the directors. Ms Shi was the company secretary. The shares in XYZ were held equally by Ms Xie and Ms Shi.

24 Mr Anderson did not want to appear as a shareholder or director on the records of ASIC because some of the customers of Olympic are in the business of manufacturing plastic film and the new business of XYZ was to be in competition with them. Mr Xin was reluctant to appear on the ASIC record as a shareholder or director because, at the time, he was employed by a plastics' manufacturer, although he was on stress leave and was under pressure to resign.

25 Mr Anderson's instructions to Mr Zoch for creation of the company included that Olympic could "not be seen to be part of this operation under any circumstances."

26 Mr Anderson and Mr Xin did not intend that Ms Shi would take an active role in the business and she did not do so (other than signing documents required for the corporate register that her husband asked her to sign). She did not attend any meetings or have any discussions about the business with Ms Xie. There was no intention that Mr Xin or his wife would undertake financial responsibilities in respect of XYZ. Rather, financial responsibilities rested with Ms Xie and Mr Anderson.

27 According to Mr Anderson and Mr Xin, it was agreed that they and Ms Xie would participate in making decisions in relation to the business. In this regard, Mr Anderson and Mr Xin say that, although they were not to be registered with ASIC as directors, it was always their intention that they would in fact act as directors. They say that Ms Xie agreed with this proposition.

28 Ms Xie disputes this. According to her, each of them had a separate role. Hers included shouldering all the responsibilities and liabilities of a director and shielding Mr Anderson and Mr Xin not only from the appearance of involvement, but from personal liability as well.

29 In about January 2009, Mr Anderson and Mr Xin went to China and met up with Ms Xie there. They investigated possible suppliers of plastic film that they could import but could not find anyone who could supply film of an appropriate quality. Mr Xin had heard that there was a plastic film making machine that might be available for purchase in China and they went to look at it. Some time later, they decided to buy the machine.

30 Mr Xin's employment with the plastic's manufacturer ended on 13 February 2009. About this time, Mr Anderson and Mr Xin became concerned that a search of ASIC's records would show Ms Shi's address and that this might mean that Mr Xin's previous employer would be able to make a connection between the company and Mr Xin. They decided that Ms Shi should resign as a director and transfer her shares in XYZ to Ms Xie. Mr Anderson and Mr Xin did not realise that an historical company search would still show Ms Shi and her address details as a former director and secretary of XYZ.

31 Ms Xie signed a contract on behalf of XYZ for the purchase of the machine dated 12 March 2009. The sale price was $1.225million. Mr Anderson approached his bank, the Commonwealth Bank of Australia, for finance for the purchase of the machine. His evidence was that the bank was reluctant to provide finance to XYZ without guarantees being given because it was a $2 company. However, the bank was prepared to provide finance to one of Mr Anderson's companies. Mr Anderson says that he told Ms Xie of his discussions with the bank and that they agreed that the purchase should be made by one of Mr Anderson's companies rather than by XYZ. However, it was always intended that the machine would be used by XYZ in the business.

32 On 30 March 2009, a meeting took place at the offices of HWZ Partners. Mr Anderson, Mr Xin and Ms Xie attended as did Mr Zoch, Tony Kelly (a solicitor introduced by Mr Zoch at the request of Mr Anderson), and Geoff Bradley (the internal accountant used by Mr Anderson in his businesses). Apart from Mr Zoch, Mr Kelly had not met any of the participants at the meeting before that day. Mr Kelly's evidence was that during the course of the meeting one of the participants said that Mr Anderson and Mr Xin wanted to conceal their involvement in the business from other companies involved in the manufacture of plastic film and, to achieve this, Ms Xie would be the sole director and secretary once Ms Shi transferred the shares she held to Ms Xie. Mr Kelly also gave evidence that at the meeting Mr Anderson, Mr Xin and Ms Xie confirmed that the business was to be under the actual control of all three of them and was to be owned by them or entities associated with them. Mr Anderson's evidence and that of Mr Xin, Mr Zoch and Mr Kelly was that Mr Anderson told the meeting that the bank would not provide finance to XYZ for the purchase of the machine and that the machine would have to be purchased by another company controlled by Mr Anderson as a condition of the bank providing finance. Ms Xie does not recall this being said at the meeting. Mr Anderson, Mr Xin, Mr Zoch and Mr Kelly also gave evidence that Mr Anderson said that down the track, if XYZ could afford it, it would buy the machine from his company.

33 During the meeting, Mr Zoch made notes on his laptop computer. In relation to the film making machine, his notes record that one of Mr Anderson's companies was to initially purchase the machine and "on the expiration of 12 months or whenever XYZ can afford it, it is agreed that the equipment will be re-financed". In his role as XYZ's accountant, Mr Zoch never treated the machine as an asset of XYZ nor did he treat XYZ as having a liability in relation to the funding for the machine. According to Mr Anderson and Mr Xin, XYZ was to reimburse Olympic in relation to its liability to make loan repayments.

34 Ms Xie says that whichever entity acquired the machine, it was to do so on behalf of XYZ. Her evidence was that the choice of the purchasing entity was to be decided by their professional advisers having regard to any taxation advantages. In relation to what should happen to the machine now she says that, with her support, XYZ is in a position to re-finance the machine and is entitled to do so.

35 In cross-examination, Mr Anderson stated that although he did not say so at the time, if at any time after purchase Olympic did not want to transfer the machine to XYZ, it would have been entitled to keep it even if XYZ demanded it and tendered payment for it. However, Mr Anderson made it clear that such an event was not something that was envisaged at the time. As he noted, he had a major interest in XYZ's business and it was not in his interests for it to fail which would have been the result if Olympic had refused to permit XYZ to use the machine.

36 Mr Kelly was instructed at the meeting on 30 March 2009 to prepare an employment contract between XYZ and Mr Xin and also a unit holders agreement. The unit trust was to be called the Fiona Xie Family Trust. Mr Anderson's company, Rhyll Investments Pty Ltd as trustee of the Rhyll Discretionary Trust, was to hold 51% of the units, Ms Xie as trustee of the Hankui Trust was to hold 29% of the units and Ms Shi as trustee of the Cheng Lin Family Trust was to hold the remaining 20% of units in the trust. Instructions were given to Mr Kelly at the meeting that any holder of 20% or more of the units would be entitled to representation on the board of directors of XYZ and that control of the business would be undertaken by a board comprised of two unit holder representatives as well as Ms Xie as director. In respect of this issue, Mr Zoch's notes taken on his laptop computer during the course of the meeting record the following:

20% nominated capital required for board representation and 20% rep in order to call a unit holders meeting.

Unit holding meetings as opposed to Directors meetings -

Minimum 3 for quorum

Majority vote for director removal by unit holding

Signatories = either Jack[4] or Fiona

$10K for capital spending discretion

Majority for bulk of greater control decisions

First right of refusal for unit holding disposals

Moratorium for share disposal - 2 years

Independent CPA valuation on any departing shareholder - 12 months for balance of unit holders to settle

37 The board was to be comprised of Mr Anderson, Mr Xin and Ms Xie. Mr Kelly gave evidence that he drew the unit holders agreement so that Ms Xie, Mr Anderson and Mr Xin (as unit holders' representatives) would attend directors' meetings and vote as if they were directors representing unit holders even though Mr Anderson and Mr Xin were not to be registered with ASIC as directors of XYZ.

38 Mr Kelly was not asked for, and did not give, advice as to whether the unit trust was the most appropriate legal structure to use. He said that it may well have been that if he had been asked to draft a joint venture agreement, he would have drafted that or that he may have drafted a document suitable for a partnership of trusts if he had been asked to do that. He said his instructions were narrow and that he was only instructed to draft a unit holders agreement and employment agreement for Mr Xin. He did not turn his mind to whether the parties were proposing to enter into a joint venture. However, Mr Kelly accepted that there was a venture that Mr Anderson, Mr Xin and Ms Xie were participating in jointly. He drew a distinction between that proposition and a joint venture as he said a lawyer might understand that term and which he said might require a different form of agreement to the one he was asked to draft.

39 The unit trust was established by deed in early May 2009. The trust was called the Fiona Xie Family Trust with XYZ named as the trustee. Ms Xie as trustee for the Hankui Trust, was the initial unit holder, holding all 100 units in the trust. In this regard Mr Zoch had noted in an email that any financier would ask for a copy of the original trust deed which would show the initial unit holders. He went on to say that it may be worthwhile for Ms Xie's trust (the Hankui Trust) to be the initial unit holder for all units and to transfer them later to Rhyll after the company's bank facilities had been established. That is what happened: the initial unit holder for all units was Ms Xie and she later signed forms transferring 51 units to Rhyll (as trustee of the Rhyll Discretionary Trust) and 20 units to Ms Shi (as trustee for the Cheng Lin Family Trust). There is also a resolution signed by Ms Xie approving the transfer of the units and certificates reflecting the new holdings were issued.

40 Ms Shi resigned as a director of XYZ on 7 May 2009 and transferred the shares she held to Ms Xie. She subsequently resigned as company secretary. Ms Xie attributes Ms Shi's resignation to a desire to protect herself from potential liability under guarantees that directors of private companies are commonly required to sign. Ms Shi deposed that she resigned and transferred her shares to Ms Xie because Mr Xin asked her to do so. She could not recall her husband giving her any explanation as to why he wanted her to resign. However, Ms Shi denied that she resigned to protect herself from potential liability from personal guarantees and noted that she had never given a personal guarantee. Mr Xin denies that protection from personal liability was the reason he asked his wife to resign and says that she was never asked to sign any guarantees. His evidence was that she resigned so that he and Mr Anderson would be protected from being identified with the XYZ business through her. As noted above, he was unaware that an historical company search would disclose that Ms Shi was a former director and secretary and would list her address.

41 On 15 May 2009, Mr Anderson signed a contract on behalf of Olympic to purchase the machine from the Chinese owner (which executed the agreement on 10 July 2009). In effect, that contract replaced the earlier contract entered into by XYZ for the purchase of the machine.

42 The Commonwealth Bank provided the finance for the purchase of the machine and ancillary equipment (although formal documentation was not entered into between Olympic and the bank until later). The amount owed to the bank is in excess of $2m. The parties to the finance agreement were Olympic as borrower and XYZ (and others) as guarantors for the loan. Ms Xie executed the finance agreement for XYZ as guarantor. There is a resolution of XYZ, signed by Ms Xie as secretary and director, evidencing that XYZ resolved to guarantee the liability of Olympic to Commonwealth Bank. The bank has a fixed charge over the machine. Olympic has paid in excess of $200,000 in repayments to the bank and has not been reimbursed by XYZ.

43 On 28 May 2009, Mr Kelly sent to Mr Anderson by email a unit holders agreement and employment agreement for Mr Xin. Mr Xin confirmed that he was given these documents. According to Mr Anderson and Mr Xin, they met with Ms Xie on 29 May 2009 to discuss the draft documents. Their evidence is that Mr Xin wanted to take the employment agreement home so that he could read it carefully. According to Mr Anderson and Mr Xin, the documents were a first draft used for discussion between them and Ms Xie. Both gave evidence that the draft documents were not signed. However, Ms Xie says that she signed the unit holders agreement on that day and that Mr Egonidis witnessed her signature. Ms Xie does not have a signed copy of the document that she says she signed. She produced an unsigned copy which she says Mr Anderson gave her to keep.

44 According to Mr Anderson, Mr Xin, Mr Kelly and Mr Zoch, there was a meeting which they all attended on 2 June 2009 at Olympic's premises. They say that Ms Xie was present. Mr Kelly remembers Ms Xie being there because she was late to the meeting. This made Mr Kelly a little tense because he had another meeting that he had to attend that he thought he might be late for because of the delay in the start of the meeting with Mr Anderson, Ms Xie and Mr Xin. In the first affidavit that he swore, Mr Kelly did not recall that Mr Zoch also attended the meeting. The explanation he gave for this was that he was there to explain the agreements and Mr Zoch's attendance was not important for that purpose.

45 Mr Kelly went through the draft unit holders agreement and draft employment agreement and they discussed various issues with suggestions for amendments to the agreements. At the end of the meeting, Mr Kelly says he was left with the task of revising the draft agreements to incorporate a number of changes which had been discussed and agreed. His evidence is that no-one at the meeting suggested that the unit holders agreement had already been signed by anyone.

46 Under the 28 May 2009 draft unit holders agreement, which Ms Xie says she signed, the requirement to pass a special resolution was 75% of unit holders. In effect, this meant that Mr Xin's vote (at 20%) had little value if he was not in agreement with both Mr Anderson (51%) and Ms Xie (29%) as his vote with only one of them would total less than 75%. Mr Anderson and Mr Xin say that it was agreed with Ms Xie at the meeting on 2 June 2009 that the requirement for a special resolution would be reduced to 70%. Ms Xie says that she never agreed to this.

47 In her affidavit evidence Ms Xie swore that there was supposed to be a meeting with Mr Kelly at which he would read and explain the terms of the unit holders agreement as well as Mr Xin's employment agreement. She swore that the meeting was scheduled for 10.00 am on 2 June 2009 at Olympic's offices but was re-arranged for 5.00 pm that afternoon. She deposed that a discussion did take place that afternoon but that Mr Kelly did not attend in person and participated by telephone. Ms Xie's affidavit evidence was that general matters about the unit holders agreement and employment agreement were discussed with most of the discussion relating to the employment agreement and the conditions on which Mr Xin's unit holdings were to be subject to redemption. In cross-examination, Ms Xie said that this part of her affidavit was not correct and was a mistake. She said that there was no telephone discussion that day with Mr Kelly nor any meeting with him that she attended. Mr Kelly's evidence is that he attended the meeting in person and he denies that he participated in the discussion that day by telephone. Mr Kelly's evidence was that he attended two face to face meetings that Ms Xie attended. The first was the meeting at Mr Zoch's office on 30 March 2009 and the second was the meeting on 2 June 2009.

48 Ms Xie's affidavit evidence was that she attended a meeting with Mr Anderson and Mr Xin on 3 June 2009 and that at this meeting, Mr Anderson wanted changes to the unit holders agreement. In particular she deposed that he wanted to remove the definition of special majority so that only 70% of unit holders would be required to pass special resolutions instead of 75%. She swore that she objected and did not agree and no amendments were made to the agreement while she was present. In cross-examination, Ms Xie said that this evidence was not correct and that what she was told was that the unit holders agreement had been amended the day before so that only a 70% majority was required for a special resolution. Her explanation for her incorrect affidavit evidence was that her solicitor must not have fully understood what she said when he drafted her affidavit.

49 On 3 June 2009, Mr Kelly re-drafted both the unit holders agreement and the employment agreement and prepared a letter commenting on the changes he had made. Subsequently, his assistant sent an email to Mr Anderson. Attached to the email were a letter and versions of the unit holders agreement and employment agreement. The agreements were each marked up to show the changes made to the 28 May 2009 version. Mr Kelly did not have a file note of the meeting the preceding day. Rather, he made some notes on a copy of the agreement he had with him at the meeting and then treated the letter he prepared on 3 June 2009 as his file note in relation to what was discussed at the meeting. This was in accord with his usual practice. The letter refers to a conference the previous day and includes observations as to aspects of each of the agreements including amendments that had been made to the earlier draft agreements. One of the comments refers to the change to the definition of special resolution so that such a resolution would require 70% of the unit holders. The letter concluded with the statement that Mr Kelly awaited comments on the unit holders agreement and employment agreement.

50 According to Mr Anderson, his assistant printed three copies of the email and attachments and spiral bound them. He says that he gave a copy to each of Ms Xie and Mr Xin on 4 June 2009.

51 The email of 3 June 2009 from Mr Kelly's assistant was forwarded to Ms Xie early on 5 June 2009. It was sent to the email address for XYZ which was the address that she had told Mr Kelly to use for her and that appeared on her business card which she gave to him when they first met at the meeting on 30 March 2009. Both Mr Anderson and Mr Xin had access to that email account as well as Ms Xie. She denied seeing the email from Mr Kelly when it was sent in June 2009 and said that she only saw it in March 2010. She also denies that she received a hard copy of the email and attachment which Mr Anderson says he gave to her on 4 June 2009.

52 Mr Anderson and Mr Xin say that another meeting to discuss the agreements then took place on 5 June 2009 which was attended by them and Ms Xie. In evidence was a handwritten note of issues that Mr Anderson says (and Mr Xin confirmed) he wrote during the meeting and then faxed to Mr Kelly. Mr Kelly received the fax just after 1.30 pm that day. The affidavit evidence filed before the trial started of Mr Anderson, Mr Xin and Mr Kelly, was that in response to the fax, Mr Kelly sent a letter with proposed amendments to the employment agreement and a suggested amendment to the unit holders agreement. They deposed that a short time later Mr Anderson rang Mr Kelly and told him that the amendments were acceptable and Mr Anderson asked for clean copies for execution which did not show the amendments in marked up form to be sent. Mr Kelly deposed that he did this. Mr Anderson and Mr Xin's affidavit evidence was that after receipt of clean versions of the documents, they met with Ms Xie to check through them. They say that they decided that a further amendment was required to Mr Xin's employment agreement and that they rang Mr Kelly while Ms Xie was in the room. Mr Kelly said that rather than him sending a further revision of the employment agreement, they should simply cross out and initial the text that they wanted to delete. Mr Kelly's affidavit evidence was consistent with this. According to Mr Anderson and Mr Xin's affidavit evidence, the text to be deleted in the employment agreement was crossed out, three copies of each of the employment agreement and the unit holders agreement were then signed. They say that Ms Xie (on behalf of XYZ) and Mr Xin signed the employment agreement and initialled the crossed out amendments. They say that Mr Anderson signed the unit holders agreement on behalf of Rhyll and Ms Xie signed the unit holders agreement once on behalf of XYZ and once on her own behalf as trustee of the Hankui Trust and that Mr Egonidis witnessed the execution of the unit holders agreement by Ms Xie and Mr Anderson.

53 Mr Anderson and Mr Xin deposed in their affidavits that after Ms Xie signed the unit holders agreement, Mr Xin took all three copies of it home with him so that his wife could execute the agreement as the third unit holder. Mr Anderson and Mr Xin deposed that after the agreements were signed, Mr Xin and Ms Xie went to see the estate agent who was handling the letting of premises at Mentone from which the business was to be operated. They both deposed that Mr Xin brought back the three executed copies of the unit holders agreement on Monday, 8 June 2009 and following this they were spiral bound as were three copies of the executed employment agreement. They deposed that Mr Anderson gave one spiral bound copy of each to Ms Xie, a copy of each to Mr Xin and Mr Anderson retained one copy of each for himself. Ms Xie says she only received a spiral bound copy of the employment agreement.

54 The copies of the signed unit holders agreement in evidence were not dated.

55 Ms Xie denies that she executed the unit holders agreement in the form which required a 70% (rather than 75%) vote of unit holders for a special majority. Her suspicion is that the pages she says she signed on 29 May 2009 were substituted into the amended version of the agreement. Mr Anderson denied this.

56 In cross-examination, Mr Anderson was taken to the executed version of the employment agreement which had been exhibited to an affidavit he swore. The employment agreement has a footer on each page. On some pages the footer contains, in part, the description "clean 2" and on some pages "clean 3". It was put to Mr Anderson that the document was a compilation from two different versions of the one document. Mr Anderson was also shown in cross-examination the executed version of the agreement that had been exhibited to Mr Zoch's affidavit. That version had some pages missing and contained footers similar to those appearing on the version exhibited to Mr Anderson's affidavit. The unexecuted version sent by Mr Kelly as the final version for execution had a footer on each page that only had the word "clean".

57 Mr Anderson could not explain why the footers on the executed employment agreement appeared as they did. There was a break in the cross-examination of Mr Anderson over a weekend. When Mr Anderson was to resume cross-examination, a further affidavit sworn earlier that day by him was relied upon. That affidavit set out that the cross-examination of Mr Anderson as to the different footers on the employment agreement prompted him to make further searches for emails and documents (in addition to those already discovered) relating to the execution of both the employment agreement and the unit holders agreement. He found further emails in a computer folder in which he would not have expected to find documents relating to this case. Those additional emails were exhibited to his affidavit.

58 In this affidavit, Mr Anderson deposed that he received an email from Mr Kelly's assistant sent at 12.34 pm on 5 June 2009 attached to which were copies of both the employment agreement and the unit holders agreement. A copy of the email and attachments was in evidence. Mr Anderson says that he, Mr Xin and Ms Xie then had some discussion about the employment agreement and rang Mr Kelly on speaker phone and asked him to make changes to the agreement. At 3.52 pm, Mr Kelly sent an email to Mr Anderson to which was attached a letter and the revised employment agreement. This email and the attachments were in evidence. The letter refers to the fax that Mr Anderson had sent and also to "subsequent telephone conversations". The letter then outlines the amendments made to the employment agreement and concludes by stating that if those amendments are agreed, a consequential amendment would need to be made to clause 18.1.8 of the unit holders agreement. Mr Kelly's letter sets out the text of that proposed amendment.

59 Mr Anderson's evidence was that he, Mr Xin and Ms Xie then discussed the proposed change to the unit holders agreement and agreed that it should be made. According to Mr Anderson, they rang Mr Kelly and asked him to make the change and send through the amended unit holders agreement which he did at about 5.30 pm by email. The text of the covering email read:

Dear Todd,

Please print off page 30 and replace the one in the earlier e-mail.

Tony Kelly

60 Page 30 is the page on which clause 18.1.8 of the unit holders agreement appeared. In cross-examination Mr Anderson said that the unit holders agreement had already been signed by him and Ms Xie before Mr Kelly's email was received at 5.30 pm. He gave evidence that they substituted page 30 of that signed agreement with page 30 from the version Mr Kelly emailed. According to Mr Anderson, the agreement was not re-signed following insertion of the new page 30. Mr Anderson thought that this was what Mr Kelly was instructing them to do and it was clear to me that he did not think that there was anything inappropriate in switching the new page 30 into the document because they all agreed that the change should be made. Mr Xin's evidence in cross-examination was that the change in the agreement leading to the replacement of page 30 was only a small amendment. His evidence and that of Mr Anderson was that Ms Xie was present when this was done.

61 Mr Anderson says that they then requested further changes to the employment agreement and Mr Kelly emailed that to Mr Anderson at 7.07 pm. Mr Anderson's evidence is that the footer on that document changes each time it is printed. However, in each footer, the words "clean 2" appear (in conjunction with other descriptions). None of the printed versions contain the words "clean 3" (which appear on some pages of the executed version of the employment agreement). Mr Anderson says he does not have a copy of the employment agreement with the footer "clean 3". There is no satisfactory explanation as to how the executed version of the employment agreement came to have pages with different footers. There are no footers on the unit holders agreement.

62 Ms Xie's evidence is that the only document she signed on 5 June 2009 was the employment agreement. She said that the signing occurred in two stages. According to her, the changes made to the employment agreement were ruled out and initialled at approximately 5.30 to 6.00 pm. She says that the pages of the employment agreement were put in order by Mr Anderson and that they then had a takeaway meal before the agreement was signed. Ms Xie says that she asked Mr Xin in Chinese if he wanted time to read the agreement and he said he had done that the night before. She says that they signed the employment agreement at about 7.30 pm after returning from the real estate agent's office. She says that Mr Egonidis had left some hours earlier. Ms Xie swore that she only has an executed copy of the employment agreement and does not have an executed version of the unit holders agreement. In cross-examination she said that she never asked for a signed copy of the unit holder's agreement because she did not think that there was a big risk in relation to her involvement in XYZ. She thought that she would invest $500,000 and that was it.

63 The evidence of Ms Shi and the witness to her signature and the witness to Ms Xie's signatures on the unit holders agreement does not assist in determining exactly when the unit holders agreement was signed. This is because the evidence of the witnesses was that the document was signed and witnessed by them in mid-2009 and Ms Shi's evidence was that she signed the agreement some time in 2009. Both she and her son, who was the witness to her signature, depose that when the unit holders agreement was signed by her, there were already other signatures on the top and bottom of the page that she signed.

64 On Tuesday, 9 June 2009, Mr Kelly sent an email to Mr Anderson which read as follows:

Dear Todd,

I trust everything was signed up on Friday. Can you please ensure that Nicholas receives a signed copy (even a photocopy) so it can be scanned and saved on the HWZ system.

Please let me know if there is anything further you wish me to attend to. If not I will render my account for my fee.

Thank you for yours, Fiona and Jack's instructions in this matter.

I wish you all every success with your new venture.

Kind regards,

Tony Kelly.

65 Mr Kelly did render a tax invoice dated 9 June 2009 for his services. The narrations on the account include items for a meeting with his clients on 2 June 2009, re-drafting the agreements on 3 June 2009 and telephone attendances and amending the agreements and letter of advice on 5 June 2009. Mr Kelly's timesheet for 2 June 2009 records an attendance by him at Moorabbin and on 3 June 2009 re-drafting the unit holders agreement and employment agreement. Ms Xie denies seeing his invoice until March 2010.

66 Mr Zoch's diary contains an appointment at 9.30 am on 2 June 2009 with the description "met Todd at Moorabbin with Tony Kelly". His timesheet for 2 June 2009 records his attendance at a meeting with Mr Anderson, Mr Xin, Ms Xie, Mr Bradley and Mr Kelly "in order to review in depth unit holders agreement in addition to employment agreement". His notes of the meeting include:

Reviewed clause by clause of the Unit Holders Agreement

Provided Jack with Trust Deeds for his wife to sign and return

Obtained signatures on all documents required to correct corporate and unit holder register

67 HWZ Partners has been responsible for maintaining the company register in relation to XYZ and the register in relation to the trust. On 22 June 2009, Mr Zoch directed his secretary to scan the original unit holders agreement and employment agreement and save them in HWZ Partner's paperless database and then send out the hard copies of both agreements to Ms Xie. He exhibited to his affidavit a copy of a covering letter of that date to Ms Xie which said that the original agreements recently executed were enclosed and that a scanned copy would be retained by their office in an electronic form.

68 Mr Xin took primary responsibility for locating suitable factory premises for the business and a property at Voltri Street, Mentone was found. The lease for those premises was executed on 5 June 2009. The machine is large. It stands approximately 16 metres high. Before the machine could be assembled, commissioned and operated, major works had to be carried out at the premises so that, in particular, it could accommodate the height of the machine. These works were arranged and organised by Mr Anderson and Mr Xin. Although the machine was to be housed at these premises, all the administrative functions of the business were carried out from Olympic's offices in Moorabbin where Ms Xie also had an office.

69 In September 2009, Mr Anderson and Mr Xin went to China to dismantle the machine so that it could be transported to Australia. The machine arrived in Australia in early November 2009. Mr Anderson and Mr Xin then installed and commissioned the machine in the leased premises. According to Mr Anderson, at about this time he and Mr Xin were working more than 12 hours a day. Mr Anderson says that the cost of dismantling, transporting, re-assembling and commissioning the machine has been borne by Rhyll and treated as a loan by the company to XYZ.

70 It seems that Mr Anderson and Ms Xie fell out with one another in about mid November 2009. From about late November 2009 until December 2009 meetings between Mr Anderson, Mr Xin and Ms Xie took place at least every week, sometimes twice a week. Agendas were prepared and sometimes formal minutes of the meetings were also taken. According to Mr Anderson and Mr Xin, these meetings were board meetings and the purpose was for them as directors to exercise control over XYZ's activities. Most of the minutes in evidence were on XYZ letterhead and were described as Board Meeting Minutes. The minuted matters are mainly of a kind with which directors in a smaller private company would be expected to deal. For example, decisions were made relating to employee/contractor issues (including as to salary/fees), equipment, the computer system and suppliers. Such a meeting was held on 3 December 2009. In Mr Anderson's view, although Ms Xie had made a financial contribution to the business, she was not contributing equally in non-financial ways. By this time, he had become exasperated with Ms Xie and decided that he was never going to work with her again. At the meeting on 3 December 2009, there were discussions to try to move past the impasse between Mr Anderson and Ms Xie. Mr Anderson suggested that Ms Xie's unit holding be reduced from 29% to 14.5%. In response, Ms Xie said she would buy out Mr Anderson. No resolution of the dispute was achieved.

71 In late December 2009, Ms Xie informed Mr Anderson and Mr Xin that she was travelling overseas to China for a month on holiday. Mr Anderson was not happy about this. A meeting was arranged for 21 December 2009 and, at the appointed time, Mr Anderson, Mr Xin, Ms Xie and her solicitor, Bruce McNab, attended. Ms Xie said she had appointed Mr McNab as her alternate director. Mr Anderson was not prepared to proceed with the meeting if Mr McNab was to be present. Mr McNab and Ms Xie left. Mr Anderson then contacted Ms Xie to say that the meeting had been postponed for two hours and asked her to attend as she was going overseas for a month the next day. She did not do so. Mr Anderson and Mr Xin proceeded with the meeting and dealt with a number of administrative and management matters.

72 In late December 2009, Sandy Arthur Constantine (a chartered accountant) was engaged to advise Mr Anderson, Mr Xin and Ms Shi in relation to the affairs of XYZ and the trust. Mr Constantine arranged for them to engage Mr Gaetano Indovino as their solicitor.

73 In December 2009 and January 2010, Mr Xin tried to mediate between Mr Anderson and Ms Xie so that a reasonable compromise could be reached and the business could continue. On 28 January 2010, he spoke to Ms Xie to try to persuade her to talk to Mr Anderson with a view to them reaching a compromise. He said that she was not willing to do this and told him that if she could not get the company, no-one would get it and she would break it. This disappointed Mr Xin and from then on his relationship with Ms Xie deteriorated. Ms Xie's evidence was that from this date, she decided to take back power over the company.

74 In this regard, on 3 February 2010, Ms Xie instructed the company's bank to remove Glenys Anderson as an authorised signatory on the company's account. Ms Anderson (who is Mr Anderson's wife) works for Olympic and until this time had been responsible for all payments for XYZ, for bookkeeping and recording the accounts receivable and payable.

75 On 5 February 2010, Mr Constantine and Mr Indovino were registered with ASIC as directors of XYZ. Mr Constantine gave evidence that one of the reasons for his appointment was to deal with the issue of who had authority to operate XYZ's bank account. He commented that Commonwealth Bank would rely on an ASIC search showing who the directors were and that this created issues because Ms Xie was shown as the sole director on the ASIC record and she was clearly the bank signatory and she was stopping payments on the account.

76 Mr Indovino believed that he was appointed by Ms Shi as a director of XYZ under clause 7.3 of the unit holders agreement. Mr Constantine believed that he was appointed by Rhyll and, on the basis of legal advice, he believed he was entitled to be appointed under clause 7.3 of the unit holders agreement and that he was appointed correctly.

77 In part that clause provides that any unit holder holding 20% or more of the issued unit capital of the trust is entitled to appoint one director to the board of directors of XYZ. The unit holders agreement also provides that where there is an inconsistency between it and XYZ's constitution, the provisions of the unit holders agreement prevail.

78 Mr Indovino and Mr Constantine both deposed that Mr Anderson and Mr Xin wanted to formalise their representation on the board of directors of XYZ to block any attempt by Ms Xie to take any step which might be adverse to their interests. They told them that for commercial secrecy reasons, they were not prepared to be registered in their own names as directors. According to Mr Indovino and Mr Constantine, the situation was to prevail for a short period until a directors' meeting could be held to canvass ways of going forward with XYZ's business.

79 Notices of the purported appointments of Mr Constantine and Mr Indovino as directors were lodged with ASIC electronically by HWZ Partners. The original notices were signed by Mr Zoch and retained by HWZ Partners. The signature block on the forms that he signed reads as follows:

Signature

This form must be signed by a current office holder of the company.

I certify that the information in this cover sheet and the attached sections of this form are true and complete.

Name

Capacity

□ Director

□ Company Secretary

Signature

80 On the original forms, Mr Zoch's signature appears in the signature panel. He did not tick either of the boxes for the capacity in which he executed the forms. Mr Zoch did not consult Ms Xie about lodging the forms with ASIC. He assumed she would not sign the forms because there was hostility between Mr Anderson, Mr Xin and her. Mr Zoch says that on 30 March 2009 he was appointed to be the company's registered agent with ASIC. Ms Xie disputes this.

81 ASIC's Electronic Lodgement Protocol provides that by lodging documents electronically, the person doing so represents that they have authority from the entity on whose behalf the document is lodged. Mr Zoch spoke to Mr Kelly and obtained instructions from Mr Indovino. He satisfied himself that even though he had not consulted Ms Xie, he nevertheless had authority as the company's accountant because of the instructions given to him to lodge the forms by the other unit holders who controlled 71% of the units in the trust. He relied on clause 7.3 of the unit holders agreement which (as noted above) provides that a unit holder is entitled to appoint a director if they hold 20% or more of the issued units.

82 Mr Zoch was not aware that a subsequent search of ASIC's records would indicate that Ms Xie had signed the original forms which were lodged electronically. If Mr Zoch had his time over, he would not have signed the forms.

83 On about 11 February 2010, Ms Xie stopped the payment of cheques which had been drawn to pay creditors of XYZ, including employees. This led to an argument between Mr Anderson and Ms Xie. Ms Xie's evidence was that she would sign cheques if she was given a reasonable reason as to why the payment should be made. On 12 February 2010, Ms Xie paid her husband's company approximately $9,900 for an invoice which Mr Anderson says was not due for payment.

84 At a meeting on 12 February 2010 attended by Mr Indovino, Mr Constantine, Mr Anderson, Mr Xin, Mr Zoch and Mr McNab as well as Ms Xie, Mr Anderson requested Ms Xie lend further funds to XYZ. She was not willing to do this unless Rhyll did so as well. Mr Anderson said that Rhyll (which he controls) was not willing to provide further financial support to XYZ. Ms Xie says that her response to Mr Anderson's proposal was that the unit holding should remain the same, that Mr Anderson should reduce his involvement in the business going forward and allow her to fund and run the business. Mr Anderson says that Ms Xie never indicated at the meeting (nor at any time until she commenced legal proceedings) that she was willing to fund the business.

85 Mr Constantine chaired the meeting on 12 February 2010. His evidence was that there was preliminary discussion regarding working capital requirements and during these discussions Mr Anderson said that Commonwealth Bank was likely to provide funding as long as all parties gave guarantees. His evidence was that Ms Xie said that as she had guaranteed the lease of the leased factory premises and the cost of the electricity sub-station erected at those premises she was not prepared to give any guarantee. Mr Constantine says that he responded by saying that XYZ needed working capital. He deposed that at that point Mr McNab said that Ms Xie was a very wealthy woman and was willing to put in her share of the working capital needed by XYZ in the proportion her units bore to the units held on behalf of Mr Anderson. According to Mr Constantine, Mr McNab asked him to give projections for working capital requirements and said that if Mr Constantine could provide that to him in a couple of days he would get instructions and get back to Mr Constantine. Mr Constantine's evidence was that Mr Anderson said firmly that he would not put any further funding into XYZ. He deposed that he then said to Mr McNab that if the funding matter was not resolved within a week, XYZ would have to shut down its operations to avoid ongoing liability. He says that he advised Mr Anderson not to put any more money in and told Mr McNab that if there was no Commonwealth Bank funding and no funding from Mr Anderson or Ms Xie, XYZ would have to close its doors and eventually an administrator would have to be appointed.

86 According to Mr Constantine, it was resolved that working capital requirements for the next week or so would be circularised and that Mr McNab would liaise with him by close of business on 16 February 2010 to discuss Ms Xie's future financial support of XYZ.

87 On 16 February 2010, Mr Constantine sent an email to Mr McNab and others advising that XYZ's working capital requirements for February 2010 were $170,000 and $390,000 for March 2010. According to Mr Constantine, he spoke to Mr McNab the next day and at no stage either then or later did Mr McNab tell him that Ms Xie was prepared to continue funding the XYZ business. Neither did Ms Xie tell him that she would fund the business.

88 The typed minutes of the meeting of 12 February 2010 (in part) record the following:

Stock on hand/inventory was agreed to be in the order of $450,000 in order to be able to trade. It was resolved that working capital requirements for the next week or so be reviewed and circularised to all unit holders.

Bruce McNab would liaise with Sandy Constantine by close of business on Tuesday, to discuss support of Fiona Xie.

...

Todd Anderson requested that Fiona Xie reduce her involvement in the Trust from 29% to 14.5%. The ongoing support of Rhyll Investments Pty Ltd would be predicated on Fiona's agreement to reduce her unit holding.

It was resolved that Bruce McNab would discuss same with Fiona Xie and liaise with Sandy Constantine by close of business Tuesday 16 February 2010 to confirm Fiona Xie's position in respect of the restructured unit holding.

89 The typed minutes were dictated by Mr Constantine shortly after the meeting with the assistance of his brief handwritten notes that he made during the meeting. Mr Constantine and Mr Indovino deposed that the minutes are true and correct. Mr Xin could not recall all the details of the meeting but deposed that when Mr Constantine sent him the minutes a day or so after the meeting, at that time he thought that they were correct.

90 After this meeting, Mr Constantine and Mr Indovino decided that as the dispute between Ms Xie, Mr Anderson and Mr Xin was not resolved and as they had only accepted appointments as directors as an interim measure pending that meeting being held, they did not wish to remain as directors. By letter later that day they purported to resign as directors. The form notifying the resignations was signed by Mr Zoch and lodged electronically with ASIC.

91 On 19 February 2010, XYZ closed its doors. From that time Mr Xin has been engaged by Olympic as a consultant at the same rate as he had been paid by XYZ.[5] XYZ's other employees have not worked for it since that date; by then, although installed, the machine had not been finally commissioned and no product had been manufactured; there were no sales or orders for product; XYZ therefore had no income stream. Mr Anderson was not prepared to provide further financial support for XYZ through his companies or personally and Mr Xin was not in a position to do so. At that time Ms Xie did not make funds available so that the business could continue. In any event, Mr Anderson and Mr Xin had already formed the view that they could no longer continue working with Ms Xie.

92 On 25 February 2010, Ms Xie opened a new bank account on behalf of XYZ. Mr Xin became aware of the account a short time later when the deposit book for it arrived in the mail at the leased factory premises. The account was opened with a deposit of $10,000. Ms Xie did this without consulting Mr Anderson or Mr Xin. Ms Xie says that the moneys were to be used for payment of expenses of XYZ, but the funds were not in fact used. She says that she paid the money into a separate account because she was concerned Mr Anderson wanted to drain XYZ's funds and to apply them in payment of his personal expenses and in payment of an invoice rendered by Olympic which was not due and payable.

93 Also on 25 February 2010, Lindsay Robert Perry and William Sandbrook were registered with ASIC as directors of XYZ. Notice of their purported appointment by Ms Shi (in the case of Mr Sandbrook) and by Rhyll (in respect of Mr Perry) under clause 7.3 of the unit holders agreement were given to XYZ. Again, however, Mr Zoch, rather than Ms Xie, signed the ASIC form notifying of the purported appointments. The same procedure was followed as that for the appointment of Mr Constantine and Mr Indovino.

94 Mr Perry purported to call a meeting of directors for 3 March 2010. Ms Xie and Mr McNab attended, as did Mr Zoch. The meeting was abandoned, according to Ms Xie, when an explanation could not be given as to the purported power under the unit holders agreement authorising the appointment of Mr Perry and Mr Sandbrook as directors.

95 Ms Xie's affidavit evidence was that when Mr Zoch walked her and Mr McNab to the lift following the aborted meeting, Mr McNab challenged Mr Zoch as to his lodgement of forms with ASIC without Ms Xie's authorisation as sole director. Ms Xie says that Mr McNab said that he objected to what Mr Zoch had done and said that any authorisation to change ASIC's records needed to come from Ms Xie. Mr Zoch did not respond to this allegation in a subsequent affidavit he swore. However, in cross-examination he said that Mr McNab had not challenged or warned him but rather had asked how the change in directors had happened. Mr Zoch responded that it was pursuant to the unit holders agreement.

96 After the 3 March 2010 meeting, Mr Anderson formed the view that he wanted to be recorded as a director of XYZ on ASIC's records. He consulted Mr Xin who agreed with him that he should also become a director. The reason given by Mr Anderson for his change of heart was that he thought it would make it easier for him and Mr Xin to take any necessary steps to protect the interests of XYZ and its creditors. In cross examination Mr Xin said that there was a deadlock situation and that for as long as he and Mr Anderson were not registered as directors, they could not even achieve the opening of a meeting because Ms Xie and Mr McNab challenged their right to do this.

97 Mr Perry and Mr Sandbrook purported to resign as directors on 4 March 2010 at the request of Mr Anderson. The form notifying the resignation was signed by Mr Zoch and lodged electronically with ASIC.

98 Mr Anderson and Mr Xin were recorded with ASIC as directors on 5 March 2010. Both Mr Anderson and Mr Xin deposed that the fact that Ms Xie had signed the unit holders agreement was taken by them as amounting to a decision or resolution by her to appoint them as directors of XYZ. Ms Xie denies that she made any such resolution.

99 The procedure followed for the purported appointments of Mr Anderson and Mr Xin as directors was the same as had been followed for the appointment of Mr Constantine and Mr Indovino. Again the notice of appointment lodged electronically with ASIC was signed by Mr Zoch. Mr Zoch knew at the time that any administrator who was appointed would check the ASIC records to confirm the identity of the directors. He also gave evidence that he knew that one of the options that Mr Anderson was considering was to appoint an administrator.

100 Notices of the purported appointments were sent to Mr McNab together with written consents to act as director signed by Mr Anderson and Mr Xin. Also a purported notice of a meeting of directors to be held at 3.00 pm on Friday, 12 March 2010 was sent to Mr McNab. The notice was signed by Mr Anderson.

101 The agenda items included the ongoing funding requirements of XYZ and for the meeting to consider the company's solvency and whether it was necessary to appoint a voluntary administrator. The notice was sent (together with other documents) by Mr Anderson's solicitors to Mr McNab at approximately 4.47 pm on Friday, 5 March 2010. Also sent with the notice was a document that listed the cash requirements for March ($434,000), April ($509,000) and May ($620,000). The amounts included were for operating costs and did not include any amount for repayment of loans advanced by Rhyll or Ms Xie. The document was prepared by the internal accountant, Mr Geoff Bradley. He was unavailable to give evidence due to serious illness. A copy of the financial statements of the trust for the period 1 July 2009 to 31 January 2010 prepared by HWZ Partners was also enclosed. For the first seven months of the 2010 financial year, the financial statements show total income of $86.67 (being interest earned). The financial statements record a net loss before tax for that period of $791,722.25. The balance sheet as at 31 January 2010 shows net liabilities of $832,905.63. Included in the liabilities are what are described as beneficiary loans by Rhyll Discretionary Trust ($1,057,589.59) and Hankui Family Trust ($500,000). Although there was some suggestion by Ms Xie's counsel that the $500,000 was contributed by way of capital, Ms Xie admitted in her pleading that the money was injected by way of loan and she deposed that she was a creditor of XYZ having advanced $500,000 to the company.

102 The financial statements had previously been tabled at the meeting on 12 February 2010. The minutes of that meeting prepared by Mr Constantine record "it was unanimously agreed that the financials identified the circumstances of the operating trust". Ms Xie does not accept that the financial statements prepared by HWZ Partners represent an accurate picture of the financial position of XYZ. She did not give any evidence going to why they are in her view not accurate other than to say that she did not believe that they included all XYZ's assets and she believed that they overstated the liability to Rhyll and included other charges for claims or invoices by parties related to Mr Anderson.

103 On Ms Xie's behalf, Mr McNab wrote to Mr Indovino on 12 March 2010 stating that the meeting proposed for that afternoon had not been validly called. Mr Indovino responded by email at 2.10pm disputing this and stating that serious issues affecting XYZ relating to its solvency must be addressed. Mr Indovino stated that the meeting would proceed as scheduled. In a letter Mr McNab sent the following day, he stated that Mr Indovino's email had only just come to his attention. Mr McNab did not give evidence.

104 Mr Anderson said in cross-examination that the meeting was necessary to protect the interests of creditors, the assets of XYZ and the machine, which was an asset of Olympic's but which was in XYZ's possession. In his view, he and Mr Xin had been hijacked by Ms Xie and had no control even though they had always been directors. He wanted to protect the machine because he did not know what Ms Xie was going to do.

105 The meeting on 12 March 2010 was held at the offices of HWZ Partners. Mr Zoch was present. Ms Xie did not attend.

106 Mr Anderson and Mr Xin proceeded with the meeting. Their evidence was that they decided that XYZ was insolvent - Mr Anderson would not provide further funding, his company, Rhyll, was owed a significant amount which he wanted repaid, Ms Xie was owed $500,000 and XYZ had no way of paying never having traded. Mr Anderson had been told by his advisers that XYZ was insolvent. Mr Anderson's view was that it was necessary to appoint an administrator to XYZ in those circumstances. He gave evidence that he decided that an administrator should be appointed because of XYZ's position not because of Olympic. By that time, XYZ's business had been shut for three weeks and no funds had been forthcoming from Ms Xie apart from the $10,000 deposited into the new account she established shortly before the date of the meeting.

107 Mr Zoch said that there was little consideration given to the actual question of insolvency at the meeting but he knew that Mr Anderson and Mr Xin had their own solvency advisers so he did not give them advice about that issue.

108 The minutes of the meeting record that in the opinion of the directors, XYZ was insolvent or likely to become insolvent at some future time. The minutes also record the resolution appointing the administrator.

109 The financial statements of XYZ prepared by Mr Zoch for the period 1 July 2009 to 12 March 2010 show net losses of $57,783.38 for 2009 and $983,186.61 for 2010. The balance sheet shows net liabilities of $1.04 million.

110 Ms Xie gave evidence that she has significant financial resources and was as at 12 March 2010, and remains, easily able to provide any financial support required by XYZ. However, apart from her assertions that she is a wealthy woman, there was very little evidence as to her financial position. In cross-examination she said that any time when the company needs money, she would provide funds. However, at no time has Ms Xie undertaken to provide funding, nor has she otherwise entered into any legally enforceable obligation to fund the company's business. Mr Xin's evidence was that Ms Xie had said many times that she could provide the funds to support the business but she never did so. Ms Xie also deposed that Commonwealth Bank had offered the company a $600,000 overdraft and it only required her signature for the overdraft to be applied to the company's account. Mr Anderson denied this and, Mr Mark Charles, the Commonwealth Bank relationship manager, deposed that the bank never made any offer to XYZ for a $600,000 overdraft and he never told Ms Xie that such an offer had been made to Mr Anderson with only her signature required for the overdraft limit to be applied to XYZ's account. Mr Charles was not cross-examined.

111 Recorded in the books of account for XYZ is a debt of $1,254,937.93 owed to Rhyll. The amount relates to goods and services provided by Rhyll to XYZ. As noted above, the internal accountant, Mr Bradley, was not available to give evidence. Evidence about the Rhyll debt was given by Mr Anderson. His evidence is that that debt needs to be adjusted to take into account errors in invoices rendered by Rhyll. He deposed in an affidavit that the correct debt owed by XYZ to Rhyll was $1,197,396.93. However, in a subsequent affidavit he deposed that he had compiled all the relevant source documents and accounting reports and had reconciled them to reach a figure of $1,255,137.45. He verified that this amount related to expenses incurred by XYZ. In cross-examination, Mr Anderson said that any debts incurred by any party in relation to the business were incurred on behalf of XYZ and when XYZ was in a position to repay these amounts they would be repaid before any profits were taken by Mr Anderson, Mr Xin or Ms Xie.

112 Ms Xie says that she did not agree to any loan from Rhyll and was not aware of the amount claimed by Rhyll until she was presented with the unaudited financial statements prepared by HWZ Partners. However, she had also deposed that on 25 November 2009, she requested, and was given by Ms Anderson, a copy of the company's balance sheet as at that date. That balance sheet showed a liability to Rhyll in excess of $270,000. Further, two days later Ms Xie was given a table of payments made that disclosed Rhyll as a creditor for over $355,000.

113 Ms Xie's evidence was that she was unaware of any demand for payment having been made by Rhyll prior to 19 April 2010. She says that it was always agreed by her, Mr Anderson and Mr Xin that any funds in the business would be repaid by XYZ in stages over a three year period after the business began trading. Mr Anderson denies this.

114 XYZ's general journal records as a loan by Ms Xie the total amount of $510,000 with various amounts being advanced between 17 April 2009 and 25 February 2010 to make up that total.

115 Mr Gary Graco of Nexia ASR Pty Ltd, chartered accountants, prepared an expert witness report at the request of Ms Xie. The report, according to Mr Graco, was preliminary and was based on the "limited information available" to him. The report expressed opinions on:

(a) the quantum and validity of charges to XYZ by Mr Anderson and entities associated with him; and

(b) whether, on 12 March 2010, XYZ was insolvent or likely to become insolvent.

116 Mr Graco is an Associate of the Institute of Chartered Accountants in Australia and has over 30 years' experience in accounting, business valuations, financial investigations and loss assessments, company management and corporate advisory work. He is not an insolvency practitioner.

117 It appeared to Mr Graco, from the documents provided to him, that the quantum of charges by Mr Anderson and entities related to him may have been approximately $1.534 million. Of that amount and on the basis of source documents he was able to verify an amount of $593,409 as being attributable to XYZ's business. He made clear in his report that the invoices for the balance of $941,784 did not contain sufficient evidence or support data for him to form a considered opinion. He had requested further information.

118 Mr Graco formed the view that XYZ was solvent at 12 March 2010 because, on his analysis, XYZ had a surplus of resources to debts due and payable of $84,675 and other assets of approximately $108,333 which may have been available to it in due course to discharge its debts. Key to this analysis were the following:

(a) on the evidence available to Mr Graco, he could not conclude that the amounts listed as owed to Rhyll ($1,255,137) and Ms Xie ($500,000) were due and payable by XYZ as at 12 March 2010;

(b) creditors not associated with either Mr Anderson or Ms Xie were owed $8,710 which was due and payable at 12 March 2010 - non-associated creditors were owed a further $8,121 but those debts were not due and payable until after 12 March 2010;

(c) XYZ had $96,385 available on 12 March 2010 to meet its debts (being cash of $10,924 and a GST refund of $85,461);

(d) he was instructed that the $500,000 paid into XYZ's bank account by Ms Xie was at all times considered by her to be the agreed contribution to the long term funding of XYZ's operations and there was no expectation that these amounts were to be repaid in the short term. Mr Graco concluded that the debts due and payable as at 12 March 2010 did not include the $500,000 owing to Ms Xie;

(e) the Rhyll invoices did not contain trading terms and so he could not determine when they were due and payable; and

(f) other amounts attributed to Rhyll may have been part of the long term funding arrangements - Mr Graco could not tell from the information available to him.

119 Mr Graco was of the opinion that XYZ was solvent even if the debts that were not due to third party creditors as at 12 March 2010 but which would fall due after that date ($8,121), and an amount of $17,490 invoiced by Olympic to XYZ, were taken into account. If account was taken of those debts, his evidence was that there would be a surplus of approximately $60,000 of what he called resources (the cash at bank and GST refund) after debts. Again, this did not take into account other debts owed to entities controlled by either Mr Anderson or Ms Xie.

120 In cross-examination, Mr Graco conceded that if the amount of $593,409 (incurred by entities associated with Mr Anderson) which Mr Graco had verified as being attributable to XYZ's business, was due and payable at 12 March 2010, then XYZ was insolvent.

121 Mr Graco did not make any assessment of whether, as at 12 March 2010, XYZ was likely to become insolvent.

122 Mr Graco did not approach the task on the basis of what cash might or might not flow into the business and be available to meet debts as they became due for payment. His approach was more a balance sheet analysis than cash flow analysis; he did not look forward beyond the immediate future and he disregarded amounts claimed by entities associated with Mr Anderson and Ms Xie. It was clear that his opinion was preliminary and was based on incomplete information. In those circumstances, his evidence was of no assistance in determining the solvency of XYZ as at 12 March 2010 or likelihood of solvency thereafter.

123 Ms Xie did not become aware of the appointment of the administrator until Mr Anderson sent her an email on 15 March 2010. The following day Mr McNab, on behalf of Ms Xie, wrote to the administrator disputing the validity of his appointment.

124 The first meeting of creditors was held on 23 March 2010.

126 On 16 April 2010, the administrator sent to creditors his report (as required by s 439A of the Corporations Act) and notice of the second meeting of creditors. Included with the administrator's report to creditors was a statement of a proposed deed of company arrangement. Essentially, Mr Anderson and Mr Xin offered to purchase XYZ's assets (which were taken not to include the machine) for approximately $270,000 and, subject to acceptance of that offer, Mr Anderson and Mr Xin proposed to pay creditors (including Ms Xie) their full debts over a six month period.

127 Also on 16 April 2010, Ms Xie obtained an injunction preventing the administrator from dealing with or disposing of the assets of the company or conducting the administration until further order.

128 The relationship between Mr Anderson and Mr Xin on the one hand and Ms Xie on the other has completely broken down. It is clear that they cannot work together. Mr Anderson's evidence is that Rhyll will not participate in any general meeting of unit holders and Mr Xin, as a representative of his wife as unit holder, will not participate either. Ms Shi herself has deposed that she is not willing to participate in such a meeting. In any event, the terms of the trust require 75% of the unit holders to resolve to terminate the appointment of XYZ as trustee or to terminate the trust. Mr Anderson (on behalf of Rhyll) has also stated that if the appointment of the administrator is overturned, Rhyll will take steps as a creditor to wind up XYZ.

129 Mr Xin and Mr Anderson are of the opinion that Ms Xie does not have the experience to conduct XYZ's business without them taking responsibility for the manufacturing operations and the general management of the business. They have a detailed knowledge of the machine and its operation which Ms Xie does not.

130 Before turning to the issues, I will first say a little about the witnesses.

131 Mr Anderson impressed me as a frank and honest witness. He was the subject of lengthy cross examination. His oral evidence was considered and measured. He made concessions when appropriate. Where his affidavit evidence was challenged, he had reasonable explanations for any errors. In this regard, he appeared to me to be genuinely confounded as to how the employment agreement came to have different footers on its pages. In the break in cross examination over the weekend, he set about finding further emails and documents relevant to that issue. He then tried to piece them together to make sense of how the document came to have the different footers. He conceded that he had been unable to find an explanation. That exercise also led him to give further evidence about the execution of the unit holders agreement on 5 June 2009. Counsel for Ms Xie sought to make much of the fact that it was only in cross examination that Mr Anderson admitted that page 30 of the unit holders agreement had been replaced after it had been signed by him and Ms Xie. However, it was clear to me from what Mr Anderson said and from his demeanour, that he did not appreciate that this may be significant.

132 I also formed the view that Mr Xin was an honest witness. He was placed in a difficult position when Mr Anderson and Ms Xie fell out with one another in December 2009. In the witness box, he was reticent to be critical of Ms Xie. He impressed me as a sincere witness.

133 Mr Zoch presented as an open and truthful witness. He was very candid when giving evidence. He openly admitted that if he had his time again, he would not have signed and lodged the change of director forms with ASIC. He appeared genuinely surprised to find that the documents obtained by a search from ASIC suggested that Ms Xie had signed the original appointment forms. Mr Zoch sought advice about whether he was entitled to lodge the forms on behalf of XYZ and, only after he satisfied himself that he was entitled to do so, did he lodge the forms. True it is that the forms themselves indicate that they should only be lodged by an office holder of the company, but having taken advice, I have no doubt that Mr Zoch did not believe that he was doing anything wrong by lodging the forms as the company's accountant.

134 Mr Kelly also struck me as a witness of truth. He considered questions he was asked in cross examination and then gave direct, responsive answers.

135 Similarly, my assessment of Mr Constantine as a witness is that he was truthful and that his evidence is reliable. He presented as a sincere and diligent person, attentive to detail.

136 Most of the evidence of these witnesses is consistent with what contemporaneous documentary evidence there is.

137 By contrast, I have formed the view that Ms Xie's evidence ought not be relied upon where it is in conflict with the other witnesses. Her answers in cross examination were often self serving and contradictory. When she was cross examined about the contents of her affidavits, she admitted errors and apologised for them but she did not have plausible explanations for the change in her evidence. For example, in relation to the meeting on 2 June 2009 that she says she did not attend, she sought to rely on telephone records to show that she could not have been at the meeting. However, close examination of those records did not support her evidence. On another occasion she suggested that an error in her affidavit may have come about because her solicitor had not quite understood what she had meant. Ms Xie's evidence also conflicted with that of the Commonwealth Bank manager, Mr Charles, in respect of whether the Commonwealth Bank had granted a $600,000 overdraft to XYZ which only required her signature for the limit on XYZ's account to be increased. Mr Charles was not cross examined. There is no reason to doubt the correctness of his evidence. However, Ms Xie maintained in cross examination that her evidence was correct and that Mr Charles' affidavit evidence was false.

Was a unit holders agreement executed by Ms Xie in June 2009?

138 It is highly probable that the unit holders agreement was executed by Ms Xie and Mr Anderson on 5 June 2009 and, after it was signed by them, a new page 30 was substituted with the consent of Ms Xie and Mr Anderson with that version being signed by Ms Shi later that day or over the weekend of 6 - 7 June 2009.

139 The version of events relating to the unit holders agreement contended for by Ms Xie is implausible and is contrary to the documentary evidence. If, as she suggests, she signed on 29 May 2009, then there would have been no need for any further work to be done by Mr Kelly after that date. In her affidavit evidence, Ms Xie stated that there was to be a meeting with Mr Kelly on 2 June 2009 when he was to explain the terms of the unit holders agreement. There would have been no need for that explanation if the agreement had already been signed. As noted above, she recanted in cross examination her affidavit evidence that a telephone discussion with Mr Kelly took place on 2 June 2009. Evidence of such a conversation was inconsistent with her contention that the agreement was signed by her prior to that date.

140 Ms Xie is an intelligent business woman. It is implausible that she would not have obtained a copy of the fully executed agreement (either in the form that she says she signed or in the form contended for by Mr Anderson and Mr Xin). Her unlikely explanation as to why she did not have or ask for a signed copy was that she did not feel that there was a big risk for her in relation to the company because all she had to do was to put in $500,000 and that was it. According to her, there was nothing much about the company (apart from this monetary contribution) that had to do with her.

In what capacity did Ms Xie execute the unit holders agreement and is it binding on any and which parties?

141 The parties to the unit holders agreement were Ms Xie (as trustee of the Hankui Trust), Ms Shi (as trustee of the Cheng Lin Family Trust), Rhyll (as trustee of the Rhyll Discretionary Trust), all as unit holders and XYZ as trustee of The Fiona Xie Family Trust. The execution clause for XYZ says that the agreement is executed by XYZ pursuant to s 127 of the Corporations Act. There is provision for a director to sign which has been left blank. Ms Xie signed above where provision was made for either a second director or secretary to sign. As at 5 June 2009, Ms Xie was recorded on ASIC's records as the sole director and Ms Shi was recorded as the company secretary.

142 It was submitted on behalf of Ms Xie that the unit holders agreement was of no effect because it was not executed by XYZ in accordance with s 127(1) of the Corporations Act. That section provides:

A company may execute a document without using a common seal if the document is signed by:

(a) 2 directors of the company; or

(b) a director and a company secretary of the company; or

(c) for a proprietary company that has a sole director who is also the sole company secretary - that director.

143 The contention was that as Ms Shi had not signed as secretary, the requirements of paragraph (b) had not been fulfilled.

144 Counsel for Mr Anderson and Mr Xin relied on s 127(4) which provides that s 127 does not limit the ways in which a company may execute a document. Counsel referred to clause 67 of the Constitution of XYZ which provides that the company may execute a document without seal by the signature of the sole director. The relevant part of the definition of "Director" in the Constitution is "any person formally and legally appointed as a Director of the Company". In that sense, Ms Xie was the sole director for the purposes of the Constitution. The unit holders agreement was executed by her as that sole director in accordance with clause 67.

145 Counsel for Ms Xie submitted that clause 67 of the Constitution could not be relied upon because the execution clause referred to execution under s 127 not under clause 67. In my view, the wording of the execution clause is irrelevant. What is important is whether Ms Xie executed it as the only person at that time who was formally and legally appointed as a director.

146 As noted above, Ms Xie signed the unit holders agreement twice. The second time she signed it she did so in her capacity as trustee of the Hankui Trust.

147 Counsel for Ms Xie submitted that a second reason that the unit holders agreement was not binding was because the "Effective Date" in the schedule was not completed with a date; rather, only the year 2009 was included. The only clauses that use the term are:

(a) clause 3.1 which provides that on the "Effective Date" the unit holders agree that they have subscribed for the number of units set out beside their name in the table in that clause. There is no dispute as to who holds units, and the number that they held at the time that the unit holders agreement was entered into - the table reflects the unit holding of 29 units to Ms Xie as trustee of the Hankui Trust, 20 units to Ms Shi as trustee of the Cheng Lin Family Trust and 51 units to Rhyll as trustee of the Rhyll Discretionary Trust;

(b) clauses 5.1 and 5.2 which provide for certain representations and warranties to be given by each unit holder and the trustee, XYZ, on the "Effective Date"; and

(c) clause 14.1.4 which restricts the transfer of units for a period of 2 years from the "Effective Date".

148 There is no clause, however, that provides that the agreement only takes effect from the "Effective Date". In those circumstances, whilst the lack of an "Effective Date" in the schedule may raise issues of construction in relation to the clauses referred to in the preceding paragraph, its absence is not fatal to the enforceability of the agreement.

149 The unit holders agreement is valid and binding on the parties to it.

Did the unit holders agreement entitle the appointment of Mr Anderson and Mr Xin as directors of XYZ and did it constitute, in effect, a resolution of Ms Xie to appoint Mr Anderson and Mr Xin as directors of XYZ?

150 Clause 7.3.1(c) of the unit holders agreement provides that a unit holder who holds 20% or more of the issued unit capital "shall be entitled to appoint one (1) Director to the Board". "Director" is defined as "a director of the Trustee [XYZ] for the time being and includes an alternate director". "Board" is defined as "the board of Directors each of whom represent a Unitholder but until otherwise agreed by Special Resolution, the Board shall consist of the Initial Director [Ms Xie] and the Unitholder's Representatives [Mr Anderson and Mr Xin]." The unit holders agreement sets out that Mr Anderson is the Chairperson of the Board.

151 Clause 7.1 of the unit holders agreement provides that:

"The Board will be responsible for the overall direction, management and control of the Trustee [XYZ] and the Business.

152 Counsel for Mr Anderson and Mr Xin submitted that the parties intended that the board of directors under the unit holders agreement was to control XYZ. He contended that the proper construction of the unit holders agreement is that the board of directors appointed under that agreement is the board of directors of XYZ. However, the requirements of the company's Constitution as to the appointment of directors must be satisfied as it is the Constitution which governs the internal management of the company.[6]

153 XYZ's Constitution provides for the appointment of new directors by the existing directors of the company. It is a requirement under the Constitution that the person to be appointed has given prior written consent to their appointment. As noted above, the Constitution defines a "Director" as a person formally and legally appointed as a director of the company and includes alternate directors.

154 When the unit holders agreement was executed, Ms Xie was the sole formally and legally appointed director of the company.

155 Where there is a sole director, XYZ's Constitution relevantly defines a "Resolution" as "a written record of the decision of the Director".[7] Mr Anderson and Mr Xin contend that the execution of the unit holders agreement by Ms Xie as a director of XYZ constituted a resolution by her as the sole director of XYZ to appoint them as directors.

156 Counsel for Ms Xie submitted that the unit holders agreement was not nor does it contain, a resolution because it does not contain any note of a decision made by Ms Xie in her capacity as a director of the company. Counsel also submitted that there is no evidence that Ms Xie understood that the unit holders agreement amounted to a resolution or a decision by her to resolve upon the affairs of the company nor was there any intention on her part that Mr Anderson and Mr Xin were to be appointed as directors. It was put that the document itself makes a clear distinction as between a "Director" on the one hand and a "Unitholder's representative" on the other hand.

157 Counsel for Ms Xie also contended that the conduct of Mr Anderson and Mr Xin was inconsistent; if they were always fully fledged directors with full power, why did they have to be appointed as directors in March 2010?

158 In Poliwka v Heven Holdings Pty Ltd,[8] consideration was given to what was required for a valid resolution of directors. Ipp J held that what is required is a "demonstrable expression of will, on the part of the directors, approving of the resolution".[9] His Honour noted:

... while it may not be necessary for a director consciously to apply his or her mind to the fact that the decision is being taken at a meeting of directors, the concurrence with the resolution must be expressed by each director in that capacity, and for the purpose of resolving, as a director, upon affairs of the company...[10]

159 I have come to the conclusion that Ms Xie did not decide, at the time when the unit holders agreement was executed, that Mr Anderson and Mr Xin should be appointed formally and legally as directors of XYZ. Such a decision would be inconsistent with the conduct of the parties and their evidence, which was to the effect that Mr Anderson and Mr Xin were not to be recorded as directors with ASIC nor to appear as such to third parties. Rather, in my view, all three agreed that Mr Anderson and Mr Xin would act informally as directors with Ms Xie being the only director on the record. That is what happened. In those circumstances, the unit holders agreement does not constitute a resolution by Ms Xie to appoint Mr Anderson and Mr Xin formally as directors of XYZ.

160 It was also submitted on behalf of Mr Anderson and Mr Xin that the unit holders agreement, being signed by Ms Xie as a director, records their appointment as directors for the purpose of s 201F(1) of the Corporations Act. For the reasons given above, the unit holders agreement is not such a record.

161 Even if there was a resolution by Ms Xie, or record of the appointment of Mr Anderson and Mr Xin as her co-directors, there was no compliance with the requirement in the Constitution and s 201D of the Corporations Act that a person who is to be appointed a director must consent in writing before being appointed. Counsel for Mr Anderson and Mr Xin submitted that although this was an irregularity in the appointments, there was incontrovertible evidence that they had both, in fact, consented to act as directors prior to 5 June 2009. Counsel contended that such consent is to be necessarily inferred from the fact that they fully participated in the drafting of the unit holders agreement in collaboration with Ms Xie and the solicitor, Mr Kelly, from 29 May 2009 to 5 June 2009.

162 If and insofar as the irregularity or lack of consent prior to execution of the unit holders agreement affects the validity of the appointment of the administrator, it was submitted on behalf of Mr Anderson and Mr Xin that the defect in the appointment may be cured by s 201M and/or s 1322(4)(a) of the Corporations Act. Section 201M provides that any act done by a director is effective even if their appointment is invalid because the company, or the purported director did not comply with the company's constitution or the Corporations Act. Section 1322(4)(a) gives courts the power to declare that anything purporting to have been done in relation to a corporation is not invalid by reason of any contravention of the Corporations Act or the company 's constitution.

163 It was submitted on behalf of Ms Xie that it was insufficient for any consent to be implied rather than written. Further, it was submitted that s 201M will operate where there is a technical defect in an appointment, but that this was not the position here. In relation to s 1322(4)(a), it was submitted on behalf of Ms Xie, that the provision was only available in relation to procedural defects and did not apply in the current circumstances.

164 The evidence only supports a finding that Mr Anderson and Mr Xin consented to act as informal directors. In that situation, neither s 201M nor s 1322(4)(a) is of assistance to them.

165 Finally, on 5 March 2010, Mr Zoch notified ASIC of the purported appointments of Mr Anderson and Mr Xin as directors of XYZ. On their behalf, counsel submitted that that notification was proper, as Mr Anderson and Mr Xin were directors at the time, having been appointed on 5 June 2009. Their case was that Mr Zoch was entitled to act on their instructions in lodging the relevant forms with ASIC.

166 As noted above, I am satisfied that Mr Zoch believed that he was entitled to lodge the forms and only came to that view after speaking to a lawyer. Nevertheless, the requirements of the Constitution for the appointment of formal and legally appointed directors were not satisfied and there was no proper foundation for lodgment of the notice of appointment with ASIC. Further, the form itself refers to the date of appointment as 5 March 2010 not 5 June 2009.

Were Mr Anderson and Mr Xin validly appointed as directors on 5 March 2010?

167 It follows from what I have said that Mr Anderson and Mr Xin were not validly appointed as directors on 5 March 2010 (that being the date that Mr Anderson purported to give notice of a meeting of directors) as no decision was made by Ms Xie to appoint them formally and legally.

Were Mr Anderson and Mr Xin de facto directors on 12 March 2010?

168 Section 9 of the Corporations Act defines directors to include persons who are acting in the position of director even though they have not been appointed as such:

"director" of a company or other body means:

(a) ...

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

(i) they act in the position of a director; or

(ii) ....

Note: Paragraph (b) - Contrary intention - Examples of provisions for which a person referred to in paragraph (b) would not be included in the term "director" are:

• section 249C (power to call meetings of a company's members)
• subsection 251A(3) (signing minutes of meetings)
• section 205B (notice to ASIC of change of address).

169 Counsel for Mr Anderson and Mr Xin submitted that if their formal appointments as directors were invalid, they were, nevertheless de facto directors from December 2008 when XYZ was incorporated.

170 It was submitted on behalf of Ms Xie that the multiple appointments by the unit holders associated with Mr Anderson and Mr Xin and subsequent resignations of directors is conduct inconsistent with Mr Anderson and Mr Xin's assertions that they were de facto directors from the date of incorporation of XYZ. It was contended that if they were de facto directors there would have been no need to engage in such conduct. I was also urged to take into account that one of the appointees, Mr Indovino, is a commercial lawyer and must not have believed that they were de facto directors. However, to assess whether a person is a de facto director, it is necessary to look at what tasks they perform and what decisions they make rather than to consider, in a contextual vacuum, whether they themselves or others subjectively thought they were directors.

171 The nature of the acts performed by directors will vary dependent upon the type of company it is.[11] The smaller the company, the more likely it is that the directors will be involved in day to day operational issues as well as high level management decisions. Here, Mr Anderson, Mr Xin and Ms Xie all participated in management decisions. They all went to China to investigate the possible sources for plastic film. When they failed to find suitable product, they turned their attention to the alternate business of manufacturing plastic film using the machine. Mr Xin took primary responsibility for locating suitable premises for the machine and he and Mr Anderson were responsible for organising the alteration of those premises so that they could accommodate the machine. They were all involved in the day to day operations of the company. Even after relations between Mr Anderson and Ms Xie soured in November 2009, they (together with Mr Xin) continued to act as co-directors and to hold "board" meetings. The minutes of those meetings disclose that they all made decisions about employment issues, equipment, the computer system and the like. In a smaller proprietary company, these are the types of matters with which directors would be expected to deal. By doing these things, Mr Anderson, Mr Xin and Ms Xie were all acting in the role of directors of XYZ.

172 Counsel for Ms Xie also submitted that there can only be a de facto director when the company intends there to be one. It was put that if this were not so, the logical extreme of having a de facto director without intention is that people could, in the face of the company's intention to the contrary, assert that they were de facto directors. Counsel submitted that there was no intention on the part of the company (through its sole director Ms Xie) that Mr Anderson and Mr Xin be de facto directors. Rather, it was contended, the reverse was intended. As I have said above at [28], Ms Xie's evidence was that each of them had a separate role and hers included shouldering all the director's responsibilities and liabilities and shielding Mr Anderson and Mr Xin not only from the appearance of involvement, but from personal liability as well. I do not accept that evidence. It flies in the face of how the parties actually conducted themselves and the terms of the unit holders agreement I have referred to in paragraphs [150] and [151] above. I have formed the view that even if intention is necessary (and I am not persuaded that it is) Ms Xie did intend that Mr Anderson and Mr Xin would act as directors but that they would conceal their role.

173 Whilst they were not formally appointed, both Mr Anderson and Mr Xin acted in the position of directors and were de facto "directors" under paragraph (b)(i) of the definition in s 9 of the Corporations Act.

If Mr Anderson and Mr Xin were de facto directors, were they entitled to convene a meeting of XYZ and appoint an administrator?

174 Section 436A(1) of the Corporations Act provides:

A company may, by writing, appoint an administrator of the company if the board has resolved to the effect that:

(a) in the opinion of the directors voting for the resolution, the company is insolvent, or is likely to become insolvent at some future time; and

(b) an administrator of the company should be appointed.

175 As set out above,[12] the examples of a "contrary intention" in the note to the definition of "director" in s 9 are, s 249C (a director may call a meeting of the company's members), s 251A(3) (signing minutes where a resolution is passed without a meeting) and s 205B (notice of name and address of directors and secretaries to ASIC)[13]. In Official Trustee in Bankruptcy v Buffier,[14] Campbell J observed that the notes are not part of the Act but they can be used as an aid to construction.[15] His Honour noted that the examples in the note include "examples where the contrary intention can be gathered from an appreciation of how the application of the definition in those sections would work in practice, rather than from any textual clues".[16]

176 It was submitted on behalf of Ms Xie that the examples establish that it is contrary to the intention of the legislation to allow a de facto director to participate in a resolution or in matters of internal corporate governance. It was put that if a de facto director has no power to call a meeting of members, then it follows that they could not call a meeting of directors; if they cannot sign minutes, they cannot vote on or pass a resolution. It was submitted that the notes to s 9 must therefore be taken to indicate that it is contrary to the intention of the legislation to so empower a de facto director, even in a relatively inconsequential matter such as the calling of a meeting, let alone in voting as to matters of gravity such as the appointment of an administrator, and especially so in the absence of, and contrary to the wishes of, the only formally appointed director.

177 Counsel for Mr Anderson and Mr Xin contended that the word "directors" in s436A includes de facto directors and that no contrary intention appears. Counsel drew on the provisions dealing with the liability of directors for insolvent trading to further support the proposition that de facto directors are included in s 436A and may appoint an administrator. Insofar as is material, s 588G of the Corporations Act provides:

(1) This section applies if:

(a) a person is a director of a company at the time when the company incurs a debt; and

(b) the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and

(c) at that time, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be; and

(d) that time is at or after the commencement of this Act.

...

(2) By failing to prevent the company from incurring the debt, the person contravenes this section if:

(a) the person is aware at that time that there are such grounds for so suspecting; or

(b) a reasonable person in a like position in a company in the company's circumstances would be so aware.

178 Section 588G applies to de facto directors.[17] Under s 588H(5) of the Corporations Act, directors have a defence in proceedings for a contravention of s 588G if they prove that they took all reasonable steps to prevent the company from incurring the debt. In determining whether the defence is made out, the Court must have regard to any action the directors took with a view to appointing an administrator to the company, when that action was taken, and its results.[18]

179 Counsel for Mr Anderson and Mr Xin submitted that it would be inconsistent to read down s 436A so as to exclude de facto directors from its operation. They contended that there is no contrary intention expressed in s 588H which would exclude de facto directors from its operation or suggest that its operation is limited to directors which have been formally appointed. Rather, it was put that, as a matter of statutory interpretation, s 588H is inextricably interconnected with s 588G and it would be anomalous to construe s 588H in a way which rendered it inapplicable to de facto directors.

180 Counsel contended that the policy of the law is to facilitate the appointment of administrators to companies that are insolvent, or likely to become insolvent, in order to protect the interests of creditors at an early stage and the legislation empowers directors to bring that about. It was submitted that the policy of the law would be substantially frustrated if s 436A is construed in a way that disentitles de facto directors from appointing an administrator to a company that is insolvent or that is likely to become insolvent.

181 In Deputy Commissioner of Taxation v Solomon; Deputy Commissioner of Taxation v Muriwai,[19] the Commissioner sought payment of penalties from directors of two companies that had failed to remit Pay As You Earn deductions. One of the directors was a de facto director. Section 222AOB(1) of the Income Tax Assessment Act 1936 (Cth) obliged directors to cause the company to do one of four things in order to avoid liability to pay the penalty:

(b) make a written agreement with the Commissioner in relation to the company's liability;

182 Section 222AOJ(3) of the Income Tax Assessment Act 1936 provided a defence to a director who took all reasonable steps to ensure compliance with s 222AOB, or where there were no such steps that the director could have taken.

183 In the Solomon case, the Court considered whether Mr Muriwai, the de facto director, could have taken steps to appoint an administrator. Gzell J (with whom Handley and Sheller JJA agreed) stated:

[60] The third alternative was to cause the company to appoint an administrator under s 436A of the Corporations Law. That provision required a resolution of the board of directors. It was submitted that the board of directors was confined to directors [formally appointed] and as Benton [a formally appointed director] was opposed to the notion, he would have ensured that any resolution at a meeting between him and Dr Solomon [the second formally appointed director] up to 12 July 2000 would not have been carried and he would not have so resolved thereafter when he was the sole director of the companies.

[61] There is force in this argument. However, Mr Muriwai and Dr Solomon were in close contact with [the minority shareholders].... After taking legal advice in early August 2000, Mr Muriwai and Dr Solomon persuaded them to take action. That they did in consequence of which, [the holding company]... was wound up.

[62] ...had Mr Muriwai and Dr Solomon sought legal advice..., the minority shareholders might have reconstituted the board of directors and voted to appoint an administrator. The point is that the opportunity was there. It was incumbent upon [Mr Muriwai and Dr Solomon]... to establish that they took all reasonable steps to ensure compliance. In light of the subsequent approach to [the minority shareholders]... I am by no means convinced that all reasonable steps were taken with respect to the third alternative.

[63] It is unnecessary to decide whether [Mr Muriwai and Dr Solomon]... demonstrated that there were no reasonable steps they could have taken to ensure the appointment of an administrator... and my conclusion is that they failed to establish that they took all reasonable steps, or there were none to be taken, with respect to the other alternatives. [20]

184 It was submitted on behalf of Mr Anderson and Mr Xin that the third sentence in paragraph [60] of the Solomon case was a double-barrelled proposition combining two elements: that s 436A was confined to directors who were validly appointed, and that the validly appointed director would have ensured that no resolution would have been passed. Accordingly, it was submitted, the court's statement at the beginning of paragraph [61], that there was force in that argument, is ambiguous and that it cannot be concluded that the court held that there is force in the argument that s 436A is confined to directors who are validly appointed.

185 Counsel for Ms Xie submitted that there was not a double-barrelled proposition in paragraph [60] of the Solomon judgment because the second limb of the sentence depended upon the first. I accept that submission. There would only have been deadlock amongst the directors as to the appointment of an administrator if it was only the formally appointed directors who could vote. In that instance, during the time when there were two formally appointed directors, one (Solomon) would vote for the appointment and it was anticipated that the other (Benton) would vote against it. During the time when there was a sole director (Benton), it was anticipated that he would not appoint an administrator. If, however, de facto directors were entitled to participate in decisions as to the appointment of administrators, then in Solomon's case, one of the formally appointed directors (Solomon) and the de facto director (Muriwai) (or during the period when there were two de facto directors, those directors (Solomon and Muriwai)) could have outvoted the other formally appointed director (Benton) and carried the resolution.

186 Paragraph [62] of the judgment supports this analysis. It is clear that his Honour is suggesting that the de facto directors had an opportunity to consult the minority shareholders (as they did in relation to the holding company) with a view to them being formally appointed as directors so that the board of directors (which would then comprise 3 formally appointed directors) could vote for the appointment of an administrator under s436A.

187 Counsel for Mr Anderson and Mr Xin submitted that it should be borne in mind that in Solomon's case, unlike the present proceedings, it was the de facto director who sought to establish that he could not have availed himself of s 436A. There is no reference in the judgment in Solomon's case to any argument having been advanced by the Commissioner to contradict the argument on behalf of the de facto director. Counsel appearing before me contended that it appears that the issue of the capacity of a de facto director to appoint an administrator under s 436A was not fully argued, nor was it decided. Counsel went on to suggest that, to some extent, the decision in relation to s 436A is in the nature of obiter dicta because the court was able to and did decide the case on the basis that the de facto director was liable because he could have taken steps for the appointment of a liquidator. It was contended that, although the issue concerning the ability of the de facto director to appoint an administrator under s 436A was an issue in Solomon, it was not critical to the final outcome of the case. The argument was put by counsel for Mr Anderson and Mr Xin that as the Commissioner in Solomon's case only had to prove that one of the four options under the relevant section could have been but was not availed of by the de facto director, it is impossible to ascertain any clear expression by the court that s 436A could not be availed of by a de facto director. Whilst, given the other findings in the case, it was not essential for the court to determine whether a de facto director could act under s 436A, nevertheless, in my view Solomon's case does lend support to the view that they cannot.

188 Counsel for Mr Anderson and Mr Xin submitted that there is a clear analogy in the underlying policy applicable to s 436A and s 459P(1) (which permits a director and others to apply for the winding up of a company). Counsel drew on that part of Solomon's case where the court held that the word "director" in s 459P(1) includes a de facto director. Gzell J stated:

[66] It was submitted that these considerations did not apply to Mr Muriwai because, even if he was a director de facto in July 2000, the reference to a director in s 459P(1)(d) of the Corporations Law should be restricted to a director [formally appointed].... I reject that submission. Winding-up proceedings in insolvency might have been commenced by a company as well as by a director. The relevant organ of the company was the board of directors. The fact that any director was also given the right to commence proceedings is a powerful reason for interpreting the term "director" in that provision in terms of the definition ... and its extension to a director de facto.

[67] A director was under a duty to prevent insolvent trading under s 588G of the Corporations Law. It was important, therefore, that a director had the right to commence winding-up proceedings in insolvency. There can be no question but that s 588G applied to directors de facto: Drysdale. All the more reason for giving the term "director" its extended meaning in s 459P(1)(d).[21]

189 In Solomon's case, Gzell J held that de facto directors were caught by s 222AOB as a result of the s 9 definition of "director", before that definition included reference to "contrary intention". Nevertheless, even if the definition had included that reference, his Honour was of the view that there was nothing in the context of the provisions in the tax legislation to indicate that s 222AOB was limited to directors who were formally appointed.[22] As appears from the passages quoted above, his Honour did not undertake the same analysis in respect of ss 436A or 459P(1).

190 In my view, there is a contrary intention such that the term "directors" in s 436A of the Corporations Act should be limited to directors who have been appointed formally. As counsel for Ms Xie noted, the remedy of appointing an administrator lies with the company, not the director. It is the board of the company that must make the resolution for appointment, not a single director acting alone (except, of course, where the company is a sole director company). This is to be contrasted with s 459P(1) where any director acting alone can apply to have the company wound up.

191 Counsel submitted that de facto directors were not without options if they were to prevent the company from trading whilst insolvent and avoid liability under s 588G; they could be formally appointed as directors and act as the legislation intended them to act; they could apply to wind up the company or they could take direct action to prevent a debt in the first place. In this case it would have been difficult, if not impossible, to persuade Ms Xie to appoint Mr Anderson and Mr Xin as her co-directors in a timely fashion. However, they at least had available to them the option of applying to wind up the company. In regard to their options, they were in a similar position to formally appointed directors who are in favour of appointing an administrator, but who are outvoted by their co-directors.

192 Although Mr Anderson and Mr Xin were de facto directors, that did not give them power to resolve that an administrator be appointed to XYZ under s 436A.

Did Mr Anderson and Mr Xin form the opinion on 12 March 2010 that XYZ was insolvent, or likely to become insolvent at some future time, and was XYZ insolvent, or likely to become insolvent, on 12 March 2010?

193 If, contrary to the views I have formed, Mr Anderson and Mr Xin were "directors" within the meaning of s 436A, the question is whether at the meeting on 12 March 2010, they formed the opinion that XYZ was insolvent or likely to become insolvent.

194 It was submitted on behalf of Ms Xie, that as Mr Anderson and Mr Xin called no expert evidence as to insolvency, did not present audited accounts, and did not call the officers assigned the task of preparing the accounts for XYZ, there was not sufficient evidence to establish insolvency. Ms Xie also relied on the evidence of Mr Graco that, in his opinion, XYZ was not insolvent as at 12 March 2010.

195 For the purposes of s 436A, the real question is whether Mr Anderson and Mr Xin genuinely and in good faith formed the opinion that XYZ was insolvent or likely to become insolvent.[23] I am satisfied that they did and that they had good grounds to do so.

196 The evidence of Mr Zoch was that little time was spent on the issue of insolvency at the meeting on 12 March 2010. However, the circumstances of the company were such that not much time needed to be spent. Both Mr Anderson and Mr Xin were aware of the company's predicament when they met on 12 March 2010. At that time, XYZ had substantial debts; it had not commenced production; it had no immediate income, nor likely future income stream; it had closed its doors some 3 weeks earlier; if it was to re-open its doors and commence production, then the likely amount of working capital required for the first month after re-opening would have been in the vicinity of $170,000 and for the next month about $390,000 (based on the requirements that were circulated after the 12 February 2010 meeting); XYZ did not have any significant assets that could be realised quickly or used to raise finance,[24] there was a deadlock between Mr Anderson and Mr Xin on the one hand and Ms Xie on the other which had not been resolved and was unlikely to be resolved in the near future; there was no external funding in place; Mr Anderson was not willing to contribute further funds; Ms Xie had not committed to provide funds in the future. On this last point, it was submitted on behalf of Ms Xie that she is not required to establish that XYZ had any enforceable right to call upon her to provide the relevant funding. It was put that it is sufficient that Ms Xie was ready, willing and able to fund XYZ, and said so in her evidence.

197 Whilst I accept that funds available from a third party (such as a director) may be taken into account in assessing solvency, in the absence of a legally enforceable obligation on Ms Xie's part, I am not convinced that she would provide the funds necessary for XYZ to avoid insolvency. Nor was I satisfied that she was in a financial position to provide the funds in a timely fashion. Even though Ms Xie had provided funds in the past, more than a mere assertion that she is able to fund the company in the future is required.[25]

198 The commercial reality was that Ms Xie and Mr Anderson were at loggerheads; it was, and is, extremely improbable that Ms Xie would ever voluntarily provide funds to keep XYZ solvent. On her case, she was the sole director. During the three week period when the company's doors were closed, she had ample opportunity to do something about that and to take steps to get the company business back up and running. She did not avail herself of that opportunity. Counsel for Ms Xie submitted that there was a lot happening in that three week period. However, whatever else was happening, Ms Xie did not take any steps to provide funds nor did she take any other steps to enable the company to pursue its originally intended business.

199 If XYZ was not insolvent as at 12 March 2010, it was highly likely in the circumstances that it would become insolvent. If, contrary to the views I express below, the debts owed to Rhyll and Ms Xie (which totalled in excess of $1 million) were not due immediately as at 12 March 2010, they would fall due later. Without an operating business, it is highly improbable that those debts could or would be repaid.

200 Counsel for Ms Xie submitted that the resolutions by Mr Anderson and Mr Xin as to insolvency and the appointment of the administrator must be considered in the context of their behaviour. Counsel contended that Mr Anderson and Mr Xin plotted against Ms Xie and were motivated by greed rather than a genuinely held view that XYZ was insolvent; that is that they wanted to have an administrator appointed from whom they could buy back the business at an undervalue without further involvement of Ms Xie. Counsel pointed to the deed of company arrangement proposal made by Mr Anderson and Mr Xin soon after Mr Crisp was appointed, whereby they offered to purchase the assets and pay all unsecured creditors their full debts within 6 months. Counsel also referred to what he termed Mr Anderson's ultimatum that unless Ms Xie agreed to reduce her unit holding from 29% to 14.5%, and have no further involvement in the business, he would no longer provide financial support personally or through his companies. It was put that this was to be contrasted with Ms Xie's generous offer to fund the business. An improper purpose may invalidate a resolution by directors for the appointment of an administrator under s 436A.[26] However, I am not satisfied that Mr Anderson and Mr Xin were motivated by an improper purpose. They found themselves in an intractable dispute with Ms Xie; the business had shut down before it was operational; there was no money coming in but debts had been incurred that would have to be paid; the company was insolvent or likely to become insolvent; something had to be done. The path they chose was to purport to appoint an administrator and, whilst for other reasons set out earlier I do not think that they had power to do this, I do not think that they were motivated by, nor that the purported appointment itself was, for an improper purpose.

Were Rhyll, Olympic and Ms Xie creditors of XYZ on 12 March 2010 and, if so, for what amounts?

201 It was submitted on behalf of Ms Xie that there was no contract between Rhyll and XYZ; there was no evidence of any relevant demand upon XYZ by Rhyll pursuant to any contractual entitlement, or at all; there was no evidence that any amount owing to Rhyll was immediately due and payable as at 12 March 2010, except Mr Anderson's assertion that it automatically became so upon an alleged breakdown in the relations between the parties. It was put that the debt arose out of book entries for which Mr Anderson was solely responsible and that those book entries were not done with the knowledge, let alone the consent, of XYZ.

202 Counsel for Ms Xie did concede that Olympic had incurred debts on behalf of XYZ and were it to make a proper demand for them, then XYZ would have to pay.

203 The submissions on behalf of Ms Xie ignore the reality of the arrangements between the parties involved in the business. It is clear that Mr Anderson and Ms Xie or entities associated with them provided financial support to meet expenses related to establishing XYZ's business. It is also clear that this was done with the full knowledge of Ms Xie and that she agreed with it. Whilst there is some evidence that tends to suggest that these were capital contributions, the preponderance of the evidence supports the conclusion that the contributions were by way of loans with the intention being that the moneys would be repaid. Indeed, Ms Xie admitted that the $500,000 that she contributed was by way of loan, and although she denies that Rhyll has loaned XYZ in excess of $900,000, the likelihood is that whatever amount it has contributed is by way of loan. In small proprietary companies, it is not unusual for there to be no formal documentation and for such loans to be recorded through the raising of invoices and book entries. It is not necessary for me to decide exactly how much was advanced by Rhyll. It is sufficient that I am satisfied on the basis of Mr Anderson's evidence that the debt was significant.

204 There is an issue as to when the debt was due and payable. Rhyll raised a number of invoices addressed to XYZ. Those invoices did not contain any terms as to the date for payment. Ms Xie's evidence was that any funds lent by Rhyll or Olympic would be repaid in stages over three years. Mr Anderson gave evidence to the effect that although there was no written agreement as to when loans made by the parties would be repaid, the arrangement was that any debts incurred by any of them in relation to XYZ, would be allocated as a cost to XYZ and, when XYZ was in a position to repay, a reconciliation would be undertaken and XYZ would repay what was owed. This was to occur before any profits were distributed to the unit holders. I did not understand Mr Anderson to be suggesting that the amount owing would never fall due for repayment. Rather, the discussions as to when amounts were to be repaid was founded on the assumption that there would be a thriving and profitable business. I prefer Mr Anderson's evidence to that of Ms Xie. The arrangements were informal and it is unlikely that a specific timeframe for repayment was set.

205 It may be that if things had gone well, the loans would have been repaid down the track as anticipated. However, events did not turn out as expected and instead of a thriving business, the position from 19 February 2010 was that the manufacturing business had not started operating and was not likely to start. On the basis of the principles espoused in B.P. Refinery (Westernport) Pty Ltd v Shire of Hastings,[27] it is necessary to imply a term into the loan agreements (both with Ms Xie and Rhyll) that when XYZ closed its doors the amount loaned was immediately due and payable. It is necessary to imply such a term to avoid what would otherwise be a ludicrous result that either the moneys were never to fall due or that they were not due for some time, possibly years, in circumstances when there was no business and XYZ was never going to be in a position to pay.

206 The situation is similar to one where the parties have not specified any date for repayment. In that regard, in Ogilvie v Adams,[28] Fullagar J stated:

Where there is a loan of money simpliciter (i.e. with nothing at all said as to repayment), the money is repayable instanter. Where there is a loan of money and the borrower contracts to repay on demand, again the money is repayable instanter. Where there is a loan of money which is recorded or acknowleged by the parties to be a loan repayable on demand, again the money is repayable instanter.[29]

207 On 19 February 2010, when the set up of the business stopped before operations had begun, the loans made by Ms Xie and Rhyll became repayable immediately and no demand was necessary.

Was the 12 March 2010 meeting properly convened and held?

208 On the basis of the findings that I have made that Mr Anderson and Mr Xin were not formally appointed directors and that, as de facto directors, they did not have power to appoint an administrator, it is not necessary for me to consider whether the 12 March 2010 meeting was validly called and held. However, the issues were fully argued at trial and, in the circumstances, I will set out some short observations on the meeting.[30]

209 The unit holders agreement requires 7 days notice to be given for a board meeting under that agreement. Ms Xie contends that inadequate notice was given of the meeting held on 12 March 2010 because the notice was sent less than 7 clear days before the meeting. The notice does refer to the unit holders agreement and was on Ms Xie's case short served by less than 2 hours.

210 However, what notice is required under the unit holders agreement is not germane. The real questions are: what notice was given in respect of a meeting of directors; and whether that notice was sufficient for the purposes of XYZ's Constitution.

211 The Constitution provides that a director may call a meeting of directors at any time and directors are entitled to receive reasonable notice of a meeting of directors.

212 Although the notice of 5 March 2010 appears to be one given under the unit holders agreement, it is clear from the documents sent with the notice by Mr Indovino to Mr McNab and from the correspondence that Mr McNab sent in response that it was understood by Ms Xie that a meeting to consider the solvency of XYZ was to be held on 12 March 2010. In the circumstances, that notice was sufficient for the purposes of the Constitution.

213 Ms Xie also contended that Mr Anderson and Mr Xin were conflicted and ought not to have voted on the resolutions as to solvency and appointment of the administrator.

214 In relation to Mr Xin, Ms Xie contended that, as he was an employee of Olympic at the time of the meeting on 12 March 2010, he owed duties both to that company and to XYZ. It was also submitted, on Ms Xie's behalf, that Mr Xin relied entirely on Mr Anderson and did not satisfy himself as to the validity of the charges made by Rhyll to XYZ. Mr Xin's employment by Olympic did not give rise to a conflict of interest and it was not necessary for him to satisfy himself as to the exact liability of XYZ to Rhyll. He knew that set up of the business had stopped and that an entity or entities associated with Mr Anderson had expended significant sums of money in support of XYZ. That was all that was required.

215 In relation to Mr Anderson, it was submitted on behalf of Ms Xie that he ought to have disqualified himself from voting at the 12 March 2010 meeting because he was severely conflicted due to his interest in Olympic and Rhyll. Ms Xie relied in this regard on clause 7.10 of the unit holders agreement which provides that if a director or unit holder's representative has any "direct or indirect interest... in any matter to be considered at a meeting of the Board", that person must not vote on any resolution in respect of such matter. However, that clause is not relevant to a meeting of XYZ's directors. Again, consideration of the Constitution is what is relevant. Clause 14 of the Constitution permits a director to vote on a matter in which they have a material interest in circumstances where the nature and extent of the interest is disclosed. Here, Mr Anderson's interests were well known both to Ms Xie and to Mr Xin.

216 In any event, it is not clear to me how Mr Anderson can be criticised for voting to put XYZ into administration on the basis that he did so when he was in a position of conflict because of his interests in Olympic and Rhyll. His vote on the issues of insolvency and the appointment of an administrator to XYZ could not lead to any benefit, gain or advantage for Rhyll or Olympic. Rhyll was owed a significant amount of money by XYZ. The appointment of an administrator was certainly not going to lead to repayment of that debt by XYZ. Similarly, the arrangement with Olympic was that it was to be reimbursed by XYZ for costs associated with the leasing of the machine. Again, the appointment of an administrator would inevitably result in that indemnity being worthless, insofar as XYZ is concerned. Whilst it was put that there was a conflict of interest that arose out of the dispute between XYZ and Olympic over beneficial ownership of the machine, I do not see how putting XYZ into administration was going to benefit Olympic on that front. When, in his evidence, Mr Anderson spoke of protection of the machine, it was in the context of not having the machine sitting idle and deteriorating. Both XYZ's and Olympic's interests, in that regard, were aligned.

217 There was also some suggestion put on behalf of Ms Xie that Mr Anderson was conflicted because of what was termed his aggressive and unfair demand that she quit the management of XYZ and halve her entitlement to units in the trust (from 29% to 14.5%). On behalf of Ms Xie, this was said to be the real reason for the breakdown in relations between the parties. I do not accept that this is a true characterisation of what happened and I do not accept that the breakdown in the relationship between Ms Xie on the one hand and Mr Anderson and Mr Xin on the other hand led to any conflict of interest that would have prevented Mr Anderson from voting at the meeting on 12 March 2010 had he otherwise been entitled to vote.

218 As counsel submitted on behalf of Mr Anderson and Mr Xin, given that XYZ had no operating business, had closed its doors, had no employees, had no orders, had no funding in place and substantial debts, the interests of XYZ were only to be administered in a way that would facilitate the disposal of its assets and the winding up of its affairs. Indeed, the only interests of XYZ at that point were to pay its debts to the maximum extent possible and to avoid incurring further debts and liabilities.

If there was a defect in the appointment of Mr Crisp as administrator, should the Court exercise its powers under s 447A of the Corporations Act to validate the appointment?

219 Section 447A of the Corporations Act gives the Court power to make such orders as it thinks appropriate about how Part 5.3A of the Act (which deals with voluntary administration and deeds of company arrangement) is to operate in relation to a particular company. Creditors and interested persons are amongst those who are entitled to seek orders under s 447A. Mr Anderson has standing to make the application.

220 The section has broad application. The High Court has held that the "words of the provision are wide enough to confer power to make orders which will have effect in the future but which are occasioned by something that has been done (or not done) under the other provisions of Pt 5.3A before application is made under s 447A(l)".[31] The section has been invoked on a number of occasions where the validity of the appointment of an administrator has been challenged.[32]

221 It was submitted on behalf of Mr Anderson that if I were to find that he and Mr Xin were de facto directors but did not have power to appoint an administrator, then the appointment of the administrator ought to be validated using the Court's powers in s 447A of the Corporations Act. They submitted that such orders ought be made because:

(a) it was always the intention of Ms Xie, Mr Anderson and Mr Xin that they would all act as directors of XYZ;

(b) it was the clear intention of Mr Anderson and Mr Xin to appoint an administrator on 12 March 2010;

(c) curing the defective appointment of the administrator would merely regularize what was intended by Mr Anderson and Mr Xin and assumed by them to have taken place;

(d) the administrator was appointed on 12 March 2010 and Ms Xie's proceeding was only commenced on 9 April 2010;

(e) the administrator has taken considerable steps in the administration of XYZ including during the period 12 March 2010 to 9 April 2010, and considerable expense has been incurred.

222 On behalf of Ms Xie, it was submitted that s 447A cannot be invoked to validate what was an illegal act by directors utterly without power. Although the events that led to the appointment of the administrator and the intentions of the various interested parties are not irrelevant, the Court's focus when making an order under s 447A (such as that which is sought) is the position of the company at the time of making the order and what is best for the company in the future.

223 In considering whether to exercise the discretion given by s 447A in order to validate, in effect, the ongoing appointment of an administrator, it is relevant to consider a number of factors which may vary from case to case.

224 It was submitted that as Ms Xie is the sole director and shareholder of XYZ, it is irrelevant whether or not the parties can work together in the future. However, as I have said elsewhere in these reasons, I have no doubt that it was intended by all parties that Mr Anderson and Mr Xin would act as de facto directors. That is something which I have taken into account in considering what should happen with XYZ.

225 The other relevant considerations in this case are the stage that the administration has reached, the financial position of XYZ, whether the business could continue if it was returned to the control of Ms Xie either alone or in conjunction with Mr Anderson and Mr Xin, whether the continued administration would be in the interests of creditors, the purpose of Part 5.3A of the Corporations Act and whether that purpose will be served by making the orders sought and whether there are any better options available to deal with the company's future.

226 In this case, the length of the administration before these proceedings began and the work that was undertaken is not so significant as to militate for the continuation of the administration.

227 For the reasons set out at [122] above, Mr Graco's evidence is not of assistance in determining whether the company is now insolvent. However, nothing has changed since the appointment of the administrator to improve XYZ's financial position and I have no confidence that Ms Xie would provide sufficient funds to rescue it from insolvency. As counsel submitted on behalf of Mr Anderson and Mr Xin, it is unrealistic to expect that Ms Xie would now provide all of the funding and do all of the work in order to receive 29% of any future profit whilst being exposed to 100% of all future losses.

228 Nor do I have any confidence that Ms Xie would be able to operate the business without the assistance of Mr Anderson and Mr Xin. The relationship between them has broken down to such an extent that I do not think that it could be repaired so that all three could work together harmoniously in the business. It is irretrievable.

229 If the administrator was removed as contended for by Ms Xie, leaving her as the sole formally appointed director, there would be nothing to prevent the other unit holders in the Fiona Xie Family Trust from exercising their rights to seek the formal appointment of Mr Anderson and Mr Xin as directors of XYZ. If Ms Xie complied with such a request, then, as I have noted, the three directors could not work together. The same stand off between them that led to this proceeding would again confront them and may well lead to further litigation. If Ms Xie did not comply with their request to be appointed as directors, then the inevitable outcome would be further litigation.

230 Another consideration is that the business was still in its start up phase when it closed its doors on 19 February 2010. There are no employees, customers or other third parties who would be adversely affected by the continuation of the administration.

231 The object of Part 5.3A of the Corporations Act is to provide for the business, property and affairs of an insolvent company to be administered in a way that maximises the chances of the company, or as much as possible of its business, continuing in existence or, if that is not possible, results in a better return for the creditors and members than would result from an immediate winding up of the company.[33] Although I think it unlikely that the company or its business in its current form will continue in existence, it is highly likely that, if the administration continues, there will be a good outcome for creditors (and certainly better than a winding up). Mr Anderson and Mr Xin have already proposed a deed of company arrangement that would see creditors receive full repayment of the debts owed to them. There is no reason to believe that they will withdraw that offer. Further, it is open to Ms Xie to make a proposal for a deed of company arrangement, should she be inclined to do so. It is in the interests of the creditors for the administration to continue.

232 It was put on behalf of Ms Xie that Mr Anderson and Mr Xin have other remedies available to them than the relief they seek in this proceeding. It was put that they could seek to wind up the Fiona Xie Family Trust. However, that would require all three parties to agree to do so because, as I have said above, the majority required to achieve that is 75% and Ms Xie holds a 29% interest and could block a resolution to wind up the trust. It was contended for Ms Xie that as Mr Anderson and Mr Xin had not called a meeting to see if the winding up of the trust could be achieved, I could not be satisfied that this was not an option. However, I have no doubt that the calling of a meeting for the purpose of resolving to wind up the trust would be an exercise in futility. Similarly, as noted above, the removal of XYZ as trustee of the Fiona Xie Family Trust would also require a resolution by 75% of the unit holders.

233 Overall, I am satisfied that the discretion under s 447A should be exercised to enable the company to continue in administration. Ordinarily, the appropriate form of order would be that Part 5.3A is to operate in relation to XYZ as if the resolution purportedly passed on 12 March 2010 by Mr Anderson and Mr Xin was a valid resolution of the directors of the company under s 436A of the Corporations Act to appoint Mr Crisp. However, as the result of an agreement reached by the parties on the eve of the trial is that Mr Crisp is not to continue as administrator, I will hear counsel as to the form of orders to be made. Those orders will have effect in the future, although they will based on how matters that occurred in the past are to be treated.

Other issues as to joint venture and appointment of a receiver

234 In view of the findings I have made, it is not necessary for me to determine whether there was a joint venture agreement between the parties, nor whether a receiver ought to be appointed. Again, much time at trial was devoted to the issue of joint venture and I will set out some short observations on these issues.

235 In my view, the parties were all capable business people. Even though the term "joint venture" is not a technical one[34], I do not think that having chosen the legal structure of a unit trust for the business, they intended to, nor did they, create a joint venture.

236 However, I am also of the view that this would not have prevented the appointment of a receiver under s 37 of the Supreme Court Act 1986 (Vic) and r 39.02 Supreme Court (General Civil Procedure) Rules 2005. The appointment of a receiver may be a drastic step and caution should be exercised in taking that step. However, having regard to the matters in paragraphs [224], [227] - [230] and [232] above, had it been necessary, I would have ordered that a receiver be appointed.

Who is the owner of the machine and does XYZ have any interest in it?

237 Ms Xie submitted that the film making machine is held on trust for XYZ. Express trusts require an intention to create a trust. A constructive trust would either require intention or contribution by XYZ to the purchase, improvement or maintenance of the machine.

238 Ms Xie submitted that there was either an express trust (because the intention at the time of purchase was that the machine would be held on trust for XYZ) or that Olympic held the machine under a constructive trust as, on her submission, XYZ paid substantial sums for the dismantling of the machine in China, its placement in to containers, its transport to Australia and its commissioning on site in Mentone in addition to the substantial sums it expended in providing purpose built factory accommodation for it.

239 The evidence does not establish that there was an intention to create a trust. Mr Zoch's note made at the 30 March 2009 meeting is the best evidence of what was intended. It records that "on the expiration of 12 months or whenever XYZ can afford it, it is agreed that the equipment will be re-financed". That does not amount to an intention to create a trust. It was submitted on behalf of Ms Xie that a number of witnesses had given evidence that if XYZ had been in a position to refinance the machine, Olympic would have been obliged to hand it over. However, that evidence does not establish that there was an intention that, before that time, Olympic would hold the machine on behalf of XYZ.

240 The evidence is insufficient to establish that XYZ made any contribution to the purchase, improvement or maintenance of the machine.

241 It was put on behalf of Ms Xie that the arrangements between the parties would make no sense at all if there was no trust because XYZ would have no means of earning income without the machine. However, it does not follow that if there was not a trust, XYZ would not have the machine available to it. XYZ had a licence to use the machine and it was in Mr Anderson's interests that XYZ be successful and continue to use the machine. There is every reason to believe that the licence would have continued had everything gone as planned.

242 At trial, Ms Xie was critical of Mr Anderson in regard to the purchase and financing of the machine by Olympic instead of XYZ. However, Ms Xie had gone along with that and raised no complaint at the time. She bears no personal liability in respect of the machine. Rather, Olympic bears the primary financial burden associated with the machine.

243 XYZ has no legal or beneficial interest in the machine.

244 In any event, in light of the findings I have made above, XYZ will remain in administration and will not have the funds available to refinance or purchase the machine.

245 I will hear counsel as to the form of orders to be made to give effect to these reasons and as to costs.

[3] It is not disputed that Rhyll transferred a 21% interest in the trust to Tanom.

[5] Although the employment agreement between Mr Xin and XYZ was signed, no salary was ever agreed and Mr Xin worked as a consultant until the business ceased.

[6] Section 134 Corporations Act.

[7] Section 248B(1) of the Corporations Act is to similar effect.

[10] Ibid at 786. See also Sheahan v Londish [2010] NSWCA 270; (2010) 244 FLR 64.

[11] Deputy Commissioner of Taxation v Austin (1998) 28 ACSR 565; Natcomp Technology Australia Pty Ltd v Graiche (2001) 19 ACLC 1,117.

[12] See paragraph [168] above.

[13] In the note, the bracketed summary reads (notice to ASIC of change of address).

[14] [2005] NSWSC 839; (2005) 54 ACSR 767.

[15] Ibid at 777 and see ss 13(3) and 15AB of the Acts Interpretation Act 1901 (Cth).

[17] Williams v Bearing Traders Pty Ltd [2008] NSWSC 1358; (2008) 69 ACSR 334; Corporate Affairs Commission v Drysdale [1978] HCA 52; (1978) 141 CLR 236.

[18] Section 588H(6) Corporations Act.

[19] (2003) 199 ALR 325.

[23] Kazar v Duus [1998] FCA 1378; (1998) 88 FCR 218.

[24] For the reasons expressed below in paragraphs [237] ff below, I have formed the view that XYZ does not have any interest in the machine.

[25] Wily v Terra Cresta Business Solutions Pty Ltd [2006] NSWSC 1042; Deputy Commissioner of Taxation v Soiland Pty Ltd (in liq) (No 2) [2010] FCA 1453.

[26] Kazar v Duus [1998] FCA 1378; (1998) 88 FCR 218.

[27] (1977) 180 CLR 266 at 283 endorsed by the High Court in, for example, Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 at 347 and 404.

[28] [1981] VicRp 92; [1981] VR 1041.

[30] See Kheirs Financial Services Pty Ltd v Aussie Home Loans Pty Ltd [2010] VSCA 355 at [103] as to whether a trial judge should decide issues not strictly necessary for decision.

[31] Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270 at 279.

[32] See for example, McVeigh v Merlo [2004] VSC 107; Re Australian Property Custodian Holdings Ltd; Ex parte Horne (2010) 80 ACSR 114; Re Pasdonnay Pty Ltd [2005] FCA 335; (2005) 53 ACSR 717; Re Wood Parsons Pty Ltd (in liq) [2002] NSWSC 1058; (2002) 43 ACSR 257.

[33] Section 435A Corporations Act.

[34] United Dominions Corporation Limited v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1 at 10.