Sino Group International Limited v Toddler Kindy Gymbaroo Pty Ltd

BACKGROUND 11 The primary judge noted that the parties were not in dispute as to much of the background facts following the appointment of the Administrators to Gymbaroo: PJ [15]. The following summary of the background facts which are presently relevant is largely drawn from the primary judge's summary: PJ [16] to [26]. 12 Gymbaroo provides neuro-developmental and sensorimotor movement programs for children from birth to five years old. Gymbaroo either franchises or licences (as applicable) the use of the programs and the brands in Australia and overseas. Gymbaroo is the registered owner of 31 different trade marks in Australia and holds trade marks, or has pending trade mark applications, in a number of overseas jurisdictions. For the 2018 to 2021 financial years, Gymbaroo had annual revenue of between $1.3 million to $1.7 million. 13 As at December 2021, Gymbaroo had 69 centres across Australia. Two of the centres were owned and operated by Gymbaroo and the balance of the centres were operated by Gymbaroo's franchisees or licensees. Gymbaroo employed 10 staff members, including three employees in each of the two Gymbaroo-operated centres, and also engaged six contractors who assisted Gymbaroo in administration, education, IT, research and development and marketing. 14 The shareholders of Gymbaroo are members of the Sasse family. They are Bill Sasse, Peter Sasse, Dr Williams (who are siblings) and Harry Sasse (who is their father). Where it is necessary to distinguish between the male members the Sasse family we will refer to them by their first names. Bill, Peter and Dr Williams are each directors of Gymbaroo. Bill, Harry, Peter and Dr Williams are also creditors of Gymbaroo (the Related Party Creditors). The Related Party Creditors are referred to in the context of the DOCA as the Excluded Creditors.

Arbitration between the Sino Creditors and Gymbaroo 15 Pursuant to a Master Licence Agreement dated 13 September 2013 (MLA), Sino is the master licensee for Gymbaroo in the territory of Greater China (as defined in Item 7 of Schedule 1 to the MLA). 16 The appointment of the Administrators on 22 November 2021 occurred against the background of an ongoing arbitral proceeding between the Sino Creditors and Gymbaroo, no. ARB 20/2018 pursuant to the Resolution Institute Arbitration Rules 2016 (Arbitration Proceeding). The Arbitration Proceeding commenced in 2018. The claim of the Sino Creditors against Gymbaroo arises out of an arbitration brought under the MLA. There were two Arbitrators involved in the Arbitration Proceeding. 17 On 14 December 2018, one of the Arbitrators issued an Interim Measures Award which restrained Gymbaroo from acting in breach of the MLA and from seeking to rebrand the Kindyroo business in China. 18 On 26 October 2020, one of the Arbitrators decided that Gymbaroo was liable to pay the Sino Creditors' costs in respect of a series of failed applications by Gymbaroo to terminate the Arbitration Proceeding. These costs were fixed in the amount of $215,274.96. 19 On 11 January 2021, one of the Arbitrators issued a Partial Final Award in which it was determined, as a preliminary question, that Gymbaroo's purported termination of the MLA on 6 January 2017 was not lawful and effective, including because Gymbaroo was in breach of essential terms of the MLA with respect to failing to provide induction training and operational visits. 20 On 14 September 2021, one of the Arbitrators made certain preservation orders to be in place either until further order, or the final determination of the Arbitration Proceeding. The orders preserved and maintained Gymbaroo's assets and intellectual property, and provided that Gymabroo was to give Sino seven days' written notice of any intention to enter into any sale agreement or other agreement, together with particulars of the proposed sale or dealing. On 22 September 2021, the Sino Creditors filed a Further Amended Statement of Claim in the Arbitration Proceeding which, amongst other things, alleged various breaches of the MLA by Gymbaroo for which damages were sought. Gymbaroo had cross-claimed against Sino in the Arbitration Proceeding, claiming approximately $1,096,823. 21 On 11 November 2021, the Sino Creditors filed submissions on the question of costs in relation to the determination of the preliminary question in the Arbitration Proceeding. The Sino Creditors claimed costs totalling $748,922.19 and also sought an order that Gymbaroo immediately pay the amount of $215,274.78 which had been fixed by the Arbitrator on 26 October 2020. 22 It was anticipated that the next phase of the Arbitration Proceeding would take place in early 2022.

Administrators appointed - 22 November 2021 23 On 22 November 2021, the directors of Gymbaroo resolved to appoint the Administrators under s 436A of the Act. That decision followed Harry's decision to call up his loan to Gymbaroo of $684,947. Section 436A enables the directors of a company to appoint an administrator to the company if the directors think it is or will become insolvent. It forms part of Part 5.3A of the Act - Administration of a company's affairs with a view to executing a DOCA. 24 As the time the directors of Gymbaroo resolved to appoint the Administrators, the Sino Creditors' claim in respect of their costs on the liability phase of the Arbitration Proceeding had not been heard and determined and a timetable for the damages phase of the Arbitration had not been entered. 25 On 30 November 2021, the Sino Creditors lodged a proof of debt with the Administrators for $5,964,197.15 comprising: fixed legal costs of $215,274.96; the additional costs (not yet fixed) of $748,922.19; and an estimated damages claim in the sum of $5,000,000 for their alleged losses as a result of Gymbaroo's breaches of the MLA: PJ [31].

First creditors' meeting - 1 December 2021 26 On 1 December 2021, the Administrators held the first meeting of Gymbaroo's creditors in accordance with s 436E of the Act. 27 At the first creditors' meeting, the Administrators admitted the Sino Creditors to vote for $964,198.15 - comprising fixed costs of $215,274.96, additional costs (not yet fixed) of $748,922.19, and allowing the damages claim for $1 "as there is no calculation provided to determine its reasonableness": PJ [32]. The Related Party Creditors were admitted to vote for $863,456: PJ [32]. 28 On 1 February 2022, the Administrators caused an advertisement to be placed online seeking expressions of interest to acquire Gymbaroo's business and intellectual property assets (EOI Campaign). The closing date for expressions of interest was midday on 21 February 2022. 29 As at 8 March 2022, the Administrators had received five non-binding indicative offers to buy Gymbaroo. This included one offer dated 7 March 2022 to purchase the assets of Gymbaroo for a cash price of $1.15 million to be settled by 30 June 2022 (the Indicative $1.15 million Offer). The offer provided for a $100,000 deposit to be paid upon the signing of the agreement, subject to due diligence, and the balance to be paid on settlement. As at the date of the commencement of the hearing before the primary judge, the Indicative $1.15 million Offer appeared to be open but the position appears to have changed by the time of closing submissions.

Administrators commence proceedings 30 On 8 December 2021, the Administrators commenced proceedings VID 732 of 2021 by which orders were sought under s 447A of the Act and s 90-15 of the IPS to the effect that they would be justified and acting reasonably in proceeding on the basis that the preservation orders made against Gymbaroo in the Arbitration Proceeding not be recognised or enforced against them as Administrators.

Sino Creditors bring application 31 In proceeding VID 732 of 2021, by interlocutory process filed on 14 January 2022, the Sino Creditors sought to have the Administrators removed pursuant to ss 447A and / or 447B(2) of the Act and / or s 90-15 of the IPS. 32 On 28 January 2022, the Court ordered that none of the parties to the Arbitration Proceeding were to take any further steps in the Arbitration Proceeding without leave of the Court. 33 The Sino Creditors' interlocutory application was listed for hearing but adjourned on 28 January 2022 and 11 March 2022. On 11 March 2022, the hearing was further adjourned to 29 March 2022.

Administrators revise voting rights 34 On 11 March 2022, after the first meeting of creditors but prior to the second meeting of creditors which was scheduled to take place on 25 March 2022, the Sino Creditors were informed, by an affidavit affirmed by Mr Rathner on 9 March 2022, that the Administrators had revised their assessment of the competing creditors' claims for the purpose of voting at the upcoming second creditors' meeting by increasing the Related Party Creditors' claims collectively to the sum of $1,961,062, and reducing the Sino Creditors' claims to the sum of $161,647. 35 The Administrators' rationale for the revised assessment was provided in the Administrators' Report which was issued to creditors on 18 March 2022: PJ [35]. The reduced amount of the Sino Creditors' claim for voting purposes was arrived at by: (a) Including fixed costs of $215,274.96; (b) Including additional costs (not yet fixed) in the reduced amount of $539,922 (a reduction based on applying the same discount as reflected in the fixing of the Sino Creditors' first costs award); (c) Including the claim for damages (said by the Sino Creditors to be approximately $5 million) for the nominal sum of $1 (said to be on the basis that no evidence had been provided to quantify the claim); and (d) Setting off what was described as unpaid license fees plus interest due under the MLA in the sum of $593,621. See PJ [36] to [37].

Convening of the second creditors' meeting - 18 March 2022 36 In the intervening period, the second meeting of creditors of Gymbaroo was called. The Administrators' Report was provided to creditors under cover of a letter from the Administrators in which they recommended that the creditors resolve that Gymbaroo enter into the DOCA. Annexed to that letter was a notice of meeting, the Administrators' Report, the Administrators' Remuneration Approval Report dated 18 March 2022 (Remuneration Report), and the DOCA. 37 The Administrators recommended the DOCA proposal to creditors on the basis that it provided an estimated dividend to Participating Creditors of 100 cents in the dollar as a result of the Related Party Creditors (referred to as the Excluded Creditors) agreeing not to participate: Administrators' Report at page 29, PJ [29]. The Administrators contrasted this outcome with a winding up scenario where they estimated a dividend to creditors in the range of 33 to 42 cents in the dollar: Administrators' Report at pages 28 to 29, PJ [29]. 38 The primary judge noted that it is uncontroversial that the purpose of the Administrators' Report was to permit creditors to make an informed choice as to what should happen to Gymbaroo: PJ [30].

Administrators' Report 39 The relevant sections of the Administrators' Report for present purposes are as follows. 40 The purpose of the Administrators' Report was set out at page 1: The purpose of this report is to provide creditors with sufficient information for them to make an informed decision about the future of the Company including: • background information about the Company; • the result of our investigations; • the estimated returns to creditors; • details of any proposed Deed of Company Arrangement; and • the options available to creditors and our opinion on each of these options. … 41 At pages 16 to 17 the Administrators said: At a meeting of creditors to be held on 25 March 2022, creditors will be asked to make a decision by passing a resolution in respect of the options available to them. In this report, we have recommended to creditors that the Company execute a Deed of Company Arrangement and detail why this option is, in our opinion, in the best interests of creditors. … 8.2.4 Contingent Liabilities - ROCAP $nil 28/2/2022 $539,992 As set out in Section 3 and 4 of this report relating to the arbitration with Sino, cost orders were made against the Company in favour of Sino in the amount of $215,274. This amount is included above at section 8.2.3. In addition to the cost orders, Sino has made a costs claim of $748,922 relating to the determination of the preliminary question, resulting from the 11 January 2021 Partial Final Award (referred to at section 4). In determining the costs order of $215,274, the Arbitrator applied the following methodology to Sino's then claim for costs of $290,393: • Sino Lawyers and Counsel: 70% • Arbitrators fees and Disbursements: 85% Applying the same methodology to Sino's costs claim of $748,922 results in the assessment of Sino's costs claim at $539,992. For the purpose of estimating the contingent liability for the costs claim we have allowed $539,992. In addition, Sino also claim damages of "Approximately $5,000,000 (Further details to be advised"). No evidence has been supplied to quantify or prove that claim. In our view the damages claim is an unliquidated contingent claim and as such cannot be quantified by a just estimate. Accordingly, we assess the damages claim for a nominal value of $1. … 42 At page 24, the Administrators said: In view of all the above comments, it is our opinion that the Company likely became insolvent on or about the time of our appointment as administrators or would have become insolvent when the cost claim of Sino would have been determined and as a result of the related parties ceasing to provide financial support for the business. We advise that should the Company be wound up, an action may be taken by the liquidator, creditors or ASIC against a director of the Company for insolvent trading. This action would include any directors of the Company at the date the Company is deemed to be insolvent. Any action would require a significant amount of work to be performed by the liquidator with no guarantee of success, or of a successful recovery from the directors. … 43 At pages 26 to 27, the Administrators said: 11. Expression of Interest in the business and assets of the Company On 1 February 2022 we advertised on seek.commercial.com.au seeking expressions of interest (EOI) in the business and assets of the Company. We advertised on seekcommercial.com.au as it claims to be Australia's largest marketplace for selling businesses. The advertising went for the period 1 February 2022 to 4 March 2022. It resulted in: - 2,348 search results - 134 views In addition, direct approaches were made to the Company's competitors identified by the Directors and our review of the IBIS World industry report. We also approached all the Company's franchisees within Australia and overseas. We received 5 offers. One offer for $1.15M stood out as worthy of further consideration. We have received confirmation from the successful party that its offer remains open until 31 March 2022, being after creditors meeting scheduled to be held on 25 March 2022. [Page 27] Our assessment of this non-binding offer indicates a return to unsecured creditors between 33 cents to 42 cents in the dollar (see Winding up section 13 below). 44 At page 27, the Administrators then said the following in relation to the proposed DOCA: 12. Director's Proposal for a Deed of Company Arrangement One of the Directors, Janet Williams, has submitted a proposal for a Deed of Company Arrangement ("DOCA"). The proposed DOCA is attached. In summary, the proposed DOCA provides for: A Deed Fund of $600,000 is to be created comprising: - estimated at $300,000

• Cash held by the Administrators: - estimated at $300,000
• Director's contribution for the balance up to $600,000

The Director's contribution, if required, is to be paid in 2 instilments 50% within 7 days of the execution of the deed; and 50% by 30 May 2022 The related parties owed a total of $1,937,904 will not participate under the Deed. The Participating Creditors are calculated to be: Priority $3,897 Superannuation owing

As the Company will continue to trade the outstanding entitlements for leave will be paid in the ordinary course. Unsecured $13,539 $285,178 Credit card $27,186 ATO - running account balance Trade creditors $82,806 Sino (after set off counter claim) $161,647

It is estimated that under the proposed DOCA, Participating Creditors will receive a dividend of 100 cents in the dollar. Deed Fund $600,000 Less estimated costs and administration fees $310,000 Priority creditor - super $3,897 Participating unsecured creditors $285,178 Balance to be returned to the Company Priority $1,925

Assumptions: • cash at bank $300,000 is after payment outstanding administration trading obligations • fees do not exceed $310,000 in best case scenario • Sino claim admitted for estimated amount of $161,647. If Sino disputes the assessment of its claim, then legal fees and administration fees are likely to be higher • no continuing or other litigation. 45 Immediately following that, at pages 27 to 28, the Administrators said the following about winding up: 13. Winding Up Should creditors decide that the Company ought to be wound up, then it is likely that unsecured creditors will receive a dividend estimated at 33 to 42 cents in the dollar. In this scenario it is assumed that the business is sold and approximately $1.15 million is recovered for the assets including the debtors. Assumptions: • no adjustment to indicative offer • no adjustment for liabilities to be assumed by purchaser for • deposit for new franchise $2,000 • gift vouchers $10,881 • purchaser takes over all employees and leases of premises • cash at bank $300,000 is after payment outstanding administration trading obligations • fees do not exceed $500,000 in best case scenario • Sino claim admitted for estimated amount of $161,647. If Sino disputes the assessment of its claim, then legal fees and administration fees are likely to be higher • no ongoing or other litigation. 46 At pages 28 to 29, the Administrators said the following about the interests of creditors: 14. Interests of Creditors In forming our opinion on the options available to creditors we can only consider the commercial outcomes, that is which proposal is likely to provide for a better return for the Company's creditors. Creditors may have other reasons and issues in considering their interests. Creditors are required to decide whether: i) the administration should come to an end; or ii) the Company should be wound up; or iii) the Company should execute a Deed of Company Arrangement. i) It is our opinion that it is not in the interests of creditors that the administration of the Company come to an end as the Company is insolvent and will continue to be insolvent. It is also our opinion that if the administration comes to an end, then it is likely that one or more creditors may seek to windup the Company. Further the arbitration between the Company and Sino is likely to resume and the outcome of the matter will be unknown with the likelihood that the cash position of the Company may deteriorate further with further spending on legal costs. The financial position of the Company will not be resolved. It will continue to be insolvent. ii) As stated above, in the event that the Company is wound up, then it is our view that the unsecured creditors are likely to receive only about 33 to 42 cents in the dollar as a dividend. Accordingly, it is our opinion that it is not in the creditors' interests for the Company to be wound up. iii) In agreeing to the Deed of Company Arrangement, the fund available for disbursement to unsecured creditors will be greater than in a liquidation as a result of: • The directors will procure a contribution to ensure the Deed Fund is $600,000. • The excluded priority employees' claims will not participate for a dividend. • The claims of the unsecured creditors will be further reduced by the agreement of the related entities not to participate for a dividend. • The claims of the contingent creditors relating to leases of the premises are unlikely to crystallise. • No redundancies will occur. Accordingly, the claims of creditors entitled to participate for a dividend will be significantly lower. It is estimated that Participating Creditors will receive a dividend of 100 cents in the dollar. It is our opinion that a Deed of Company Arrangement along the line of the Director's proposal is in the creditors' interests for the reasons set out above.

Administrators' Remuneration Approval Report 47 In the Remuneration Report, creditors were relevantly requested to approve remuneration of: $306,787.70 for the voluntary administration; $180,738.25 if a DOCA were accepted; or $399,501.95 if the company were liquidated. The Remuneration Report also included the following: In this remuneration approval report, the estimate for our fees under an administration and Deed of Company Arrangement scenario reflects a total higher estimate of $487,525.95 excluding GST than what has been estimated at a cap of $310,000 excluding GST in the report to creditors dated 18 March 2022. The capped amount is based on no further court matters. At this time we cannot confirm if there will be any further court matters in relation to Sino under a Deed of Company Arrangement scenario. If there is significant litigation, court involvement and legal proceedings, the capped estimate of $310,000 excluding GST will no longer apply and we will have to seek higher fees than what has been estimated in our report to creditors under a Deed of Company Arrangement scenario. This is reflected accordingly in the resolutions we are seeking approval from the creditors on a worse case (sic) scenario. 48 In this way, the Remuneration Report sought approval from creditors of remuneration based on an estimate of potential costs of at least $487,525.95 ($306,787.70 plus $180,738.25) in the DOCA scenario - on a "worse case scenario". That is approximately $180,000 more than the "best case" scenario referred to in the Administrators' Report which underpinned the headline comparator for the DOCA of 100 cents in the dollar.

Second creditors' meeting - 25 March 2022 49 The second creditors' meeting was held on 25 March 2022, at which time the resolution to approve entry into the DOCA was approved by majority in number and in votes. 50 The minutes of the second meeting record that the Administrators admitted Sino Creditors' claims for voting purposes at the second creditors' meeting in the sum $161,647. The Related Party Creditors were collectively admitted to vote in the total sum of $1,937,904. The remaining unrelated creditors were collectively admitted to vote in the total sum of $50,189. 51 On the resolution that Gymbaroo execute the DOCA, all creditors, except the Sino Creditors, voted in favour. However, had the votes of the Related Party Creditors been excluded, the resolution would not have passed by either of the requisite majorities.

The DOCA 52 On 28 March 2022, Gymbaroo and the Administrators executed the DOCA. 53 The DOCA relevantly includes the following provisions: (1) A Deed Fund of $600,000 is to be established by the Deed Administrators [cl 1.1, cl 4.1]. (2) The Deed Fund shall comprise the Company Funds and the Deed Contribution [cl 1.1]. (3) The term 'Company Funds' is defined as follows [cl 1.1]: Company Funds the amount of money held in the Administration Bank Account as at the Effective Date (including but not limited to monies received from trade debtors of the Company prior to the Effective Date) after allowing for all unpaid liabilities and obligations of the Company during the Administration Period (4) Effective Date means the date of execution of the Deed [cl 1.1]. (5) Deed Contribution is defined as follows [cl 1.1]: Deed Contribution the amount calculated in accordance with the following formula: Deed Contribution = Deed Fund - Company Funds (6) The Proponent must procure payment of the Deed Contribution to the Deed Administrators as follows [cl 3.1]: (a) 50% of the Deed Contribution within 7 days of the Effective Date; and (b) 50% of the Deed Contribution on or before 30 May 2022. (7) Payments out of the Deed Fund are in the following order [cl 4.1]: (a) firstly, to the Administrators in respect of the Administrators' Remuneration and Expenses; (b) secondly, to the Deed Administrators in respect of the Deed Administrators' Remuneration and Expenses; (c) thirdly, in the order specified in Section 556 of the Act as though the Company were being wound up and there were no Claims by any Secured Creditor; and (d) fourthly, in full and final settlement of the proved Claims of all Participating Creditors and if more than one on a pari passu basis. (8) Participating Creditors will be entitled to payment of that portion of the Creditor's Claim as the Deed Administrators determine that they are able to pay [cl 4.3]. (9) Participating Creditors means all Creditors other than the Excluded Creditors [cl 1.1]. (10) The Excluded Creditors are William (Bill) Sasse, Peter Sasse, Janet Williams and Harry Sasse [cl 1.1], who are all related parties of the Company. (11) The Deed Administrators will determine and make payments of Claims to Participating Creditors on the same basis as in a winding-up [cl 4.5]. (12) Claim is defined as follows [cl 1.1]: Claim a debt payable by, and all claims against, the Company (present or future, certain or contingent, ascertained or sounding only in damages) and being a debt or claim the circumstances giving rise to which occurred on or before the Appointment Date and which would be admissible to prove against the Company in accordance with Division 6 of Part 5.6 of the Act if the Company were to be wound up (13) All Participating Creditors [but not Excluded Creditors] must accept their entitlements (if any) under this Deed in full satisfaction and complete discharge of all Claims and will, if called upon to do so, execute and deliver to the Company such forms of release as the Deed Administrators may require [cl 2.3]. (14) Upon termination of the Deed pursuant to cl 7: (a) the Company will be forever released from all Claims of Participating Creditors [but not Excluded Creditors]; and (b) all Claims of Participating Creditors [but not Excluded Creditors] will be discharged and extinguished forever [cl 2.4]. (15) Termination under cl 7 of the Deed includes if there is an unremedied breach by the Proponent [cl 7.1(c)] whose obligation is to procure the Deed Contribution [cl 3.1]. (16) Subject to s 444D of the Act, the Deed may be pleaded by the Company against any Participating Creditor as a bar to any Claim that is released, discharged and extinguished under this Deed.

Sino Creditors commence separate proceedings 54 On 29 March 2022, the day after the DOCA was executed, the Sino Creditors commenced proceedings VID 153 of 2022 in which they sought orders terminating the DOCA under s 445D and / or 445G of the Act, or alternatively under s 75-41 of the IPS. The application was listed for hearing before the primary judge on 11 April 2022. In their application, one of the grounds upon which Sino relied was that Gymbaroo would remain insolvent even after completion of the DOCA due to the debts owed to the Related Party Creditors. For this reason, it was contended by the Sino Creditors that the DOCA should be terminated and Gymbaroo should be wound up.

The Subordination Deeds 55 On 11 April 2022, which, as mentioned, was the first day of the hearing of the Sino Creditors' application to terminate the DOCA, each of the Related Party Creditors executed Subordination Deeds. By these deeds, the Related Party Creditors agreed that the debts due to each of them from Gymbaroo would not be repayable for three years and that they would not prove or claim repayment of their debts in the event Gymbaroo became insolvent in the intervening period. The Subordination Deeds were not conditional on a continuation of the DOCA and were executed in the face of an extant application to terminate the DOCA. The Subordination Deed to which Harry was a party was executed by Dr Williams pursuant to a power of attorney. 56 The circumstances in which the Subordination Deeds came to be executed during the hearing of the Sino Creditors' application were not explained in the evidence before the primary judge. Although not in evidence on the appeal, Dr Williams' counsel submitted that: …The deeds were entered into in response to criticisms raised in opening address at the trial that the DOCA offended notions of commercial morality and public policy on the basis that the DOCA didn't extinguish my client and her three siblings' related debt. And it was put against my client that if she could in effect or one of her siblings could in effect tip the company into insolvency by calling up a related debt after the DOCA was effectuated. So in order to neutralise that concern, the deeds were, indeed, prepared after court that day and produced the next day to take that concern off the table as the potential for one of the related parties to put the company into liquidation after the DOCA was effectuated. That was the reason why it was done and that was the reason why there was no evidence about it because it was all done so terribly quickly. But that's the extent of the circumstances surrounding the creation of the deeds. … 57 In each Subordination Deed it is recited that the Related Party Creditor has agreed "at the request of [Gymbaroo]" to subordinate his or her debts to the claims of the unrelated creditors and to forbear calling upon his or her loan. Harry, whose decision to call up his loan triggered the appointment of the Administrators under s 436A of the Act, was one of those that executed a Subordination Deed, albeit by his attorney, Dr Williams, who was also the Deed Proponent. Given the timing of the Subordination Deeds being executed and introduced into evidence, it does not appear that either Dr Williams or Mr Rathner was cross-examined on the circumstances in which the deeds came to be executed. There is no explanation for Gymbaroo's apparent decision to request the Related Party Creditors to enter into the Subordination Deeds other than to defeat the Sino Creditors' application to terminate the DOCA in so far as it was based on the submission that the DOCA was contrary to public policy.

LEGISLATIVE FRAMEWORK AND APPLICABLE PRINCIPLES 58 At trial, there was no dispute as to the statutory framework and relevant principles to be applied: PJ [105]. The primary judge summarised the statutory framework and principles relevant to the present appeal at PJ [106] to [127]. For present purposes, noting that grounds 3 and 4 are determinative of this appeal, it is only necessary to address the principles in respect of s 445D(1)(a), (c) and (f) of the Act.

Section 445D - Court termination of a deed of company arrangement 59 The Court has power to terminate a deed of company arrangement under s 445D of the Act which relevantly provides: 445D When Court may terminate deed (1) The Court may make an order terminating a deed of company arrangement if satisfied that: (a) information about the company's business, property, affairs or financial circumstances that: (i) was false or misleading; and (ii) can reasonably be expected to have been material to creditors of the company in deciding whether to vote in favour of the resolution that the company execute the deed; was given to the administrator of the company or to such creditors; or … (c) there was an omission from such a document and the omission can reasonably be expected to have been material to such creditors in so deciding; or … (f) the deed or a provision of it is, an act or omission done or made under the deed was, or an act or omission proposed to be so done or made would be: (i) oppressive or unfairly prejudicial to, or unfairly discriminatory against, one or more such creditors; or (ii) contrary to the interests of the creditors of the company as a whole; or ... (2) An order may be made on the application of: (a) a creditor of the company; or ... 60 The materiality test in s 445D(1)(a)(ii) is incorporated by reference in s 445D(1)(c). 61 In the present case, the relevant document for the purpose of s 445D(1)(a) and (c) is the Administrator's Report. Such a report must be provided to creditors before the second creditors' meeting. It was not in dispute that the purpose of an administrator's report is to permit creditors to make an informed choice as to what should happen to the company: DSG Holdings Australia Pty Ltd v Helenic Pty Ltd (2014) 86 NSWLR 293, [90] Leeming JA, Meagher JA and Bergin CJ in Eq agreeing.

Sections 445D(1)(a) and (c) - false or misleading information 62 The following principles, drawn from the authorities, apply to s 445D(1)(a) and (c) of the Act and are relevant in the present context: (1) The test for whether information is false or misleading or contains a material omission is determined objectively. (2) The inquiry is directed to the adequacy of the information presented to creditors to enable their decision-making, not to the intention or conduct of any person who provides the information. (3) It is the objective quality of the information that is assessed, not whether anyone was in fact mislead. (4) The inquiry is directed to the information available at the date of the hearing and is not limited to the information available at the time the information was produced. (5) Estimates as to recoverability may be misleading in circumstances where no qualifying information or doubt is expressed as to the recoverability of the certain amounts, notwithstanding that a creditor may appreciate that the information is merely an estimate or prediction. (6) Estimates of liability that are not close to the actual liability later revealed may be false or misleading for the purposes of s 445D(1)(a). (7) Where an estimate of a liability is represented to be "likely to arise in the future" and that figure ultimately proves to be far too low, the estimate may be false or misleading where based on an incorrect and material particular or by reason of an omission of a material particular. (8) An omission which can reasonably be expected to have been material to creditors in deciding to vote in favour of execution of a DOCA may justify terminating a DOCA under s 445D(1)(c). (9) Section 445D(1)(c) is to be understood in the context of an administrator's statutory and other duties to make investigations and inquiries. (10) Sections 445D(1)(a) and (c) each require that the information or omission is of a kind that can reasonably be expected to have been material to creditors in deciding whether to vote in favour of executing a DOCA. (11) In the context of s 445D(1)(a), "material" means something which was relevant and did affect, or might have affected, the outcome (being the decision to execute the DOCA). By extension, in the context of s 445D(1)(c), "material" means something which was relevant and might have affected the outcome. (12) The information or omission need not reasonably be expected to be material to all creditors, but it must affect a sufficient number. (13) The test of materiality is objective. (14) In deciding whether the materiality test is satisfied, all the information about the company's business, property, affairs or financial circumstances that has been found to be false or misleading, or to have been omitted, should be considered collectively. See further discussion in Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd [2006] NSWSC 1235; (2006) 226 ALR 510 at [147], [150] to [152], [162], [165] to [169], [176]; Bovis Lend Lease v Wily [2003] NSWSC 467 at [324], [345]; Mondello Farms Pty Ltd v Annatom Pty Ltd (subject to a deed of company arrangement) [2007] SASC 296; 64 ACSR 91 at [97] to [101]; Adelaide Brighton Cement Limited, in the matter of Concrete Supply Pty Ltd v Concrete Supply Pty Ltd (subject to a deed of company arrangement) (No 4) [2019] FCA 1846 at [1197] to [1198].

Section 445D(1)(f)(i) - oppression, unfair discrimination or unfair prejudice 63 Section 445D(1)(f)(i) will be satisfied if the DOCA, or a provision of it, is oppressive or unfairly prejudicial to, or unfairly discriminatory against, one or more creditors. 64 The principles applicable to s 445D(1)(f)(i) were summarised by McKerracher J at first instance in Decon Australia Pty Ltd v TFM Epping Land Pty Ltd (No 2) [2021] FCA 32 at [202] to [203] (approved by the Full Court in Decon Australia Pty Ltd v TFM Epping Land Pty Ltd [2022] FCAFC 54 at [168]): 202 In respect of s 445D(1)(f)(i) of the Corporations Act, and whether the DOCA is oppressive or unfairly prejudicial to, or unfairly discriminatory against, one or more creditors, the following propositions of law are applicable to the current circumstances: (a) Part 5.3A of the Corporations Act assumes that the creditors are best placed to judge their interests so a setting-aside will not be ordered lightly: University of Sydney v Australian Photonics Pty Ltd [2005] NSWSC 412; (2005) 53 ACSR 579 at [34]; (b) the mere fact that a creditor is prejudiced by the operation of the deed is not a sufficient reason to terminate a deed. The mere existence of the deed procedure usually means that some creditors will gain something and some creditors will lose something out of the arrangement: Fleet Broadband (at [57] and the authorities cited therein); (c) the test under s 445D(1)(f)(i) is not merely discrimination or prejudice, but unfair discrimination or unfair prejudice. Some degree of discrimination is not necessarily unfair. Thus, it is clear that a DOCA may provide for differential dividends among creditors: Hamilton v National Australia Bank Ltd (1996) 66 FCR 12 (at 38E). Part 5.3A does not require a pari passu distribution. What is required is a better return to creditors than an immediate winding up. That object is met if some creditors are better off than in a winding up and none are worse off under the DOCA than they would be under a winding up: Fleet Broadband (at [62]); and (d) when deciding whether a deed unfairly prejudices or discriminates against a creditor or group of creditors, consideration must be given to what those purportedly prejudiced creditors would receive, or would be likely to receive, on a winding up, and the reasonableness of any conclusions reached by the administrator on that question: Lam Soon Australia Pty Ltd v Molit (No 55) Pty Ltd (1996) 70 FCR 34 (at 50); TNT Building (at [43]). 203 In respect of determining what is unfairly discriminatory: (a) there must be reasonable grounds for differentiation between creditors of an equal class (for example, ordinary unsecured creditors) that accord with the object and spirit of Pt 5.3A: Lam Soon (at 46-48). Circumstances may exist where certain creditors must be paid in full to ensure their continued support for the company to allow it to continue to trade: Employers' Mutual Indemnity (Workers' Compensation) Ltd v JST Transport Services Pty Ltd (1997) 72 FCR 450 per Branson J (at 464-465 applying Lam Soon); (b) there will be circumstances when ordinary commercial common sense will demand, in the case of priority creditors, a loss of priority and, in the case of unsecured creditors, some degree of discrimination: Commonwealth v Rocklea Spinning Mills Pty Ltd (2005) 145 FCR 220 per Finkelstein J (at [25]); (c) where a deed proposes to preserve the company to achieve the objects of Pt 5.3A of the Corporations Act, there should be no expectation of equal treatment of unsecured creditors where such treatment would defeat that purpose: Rocklea per Finkelstein J (at [30]). (d) ultimately, if there is no prima facie evidence of misfeasance, concealment or a materially inadequate preliminary examination, and the DOCA offers both real financial benefits credibly estimated on preliminary investigation to exceed those available on liquidation, and indirect or collateral benefits from the survival of the company's business; and no worthwhile avenues for further recovery in liquidation are identified, a major creditor's curiosity or preference for further exploration of speculative claims is unlikely to render termination of the DOCA in the interests of the creditors as a whole: Mediterranean Olives (at [195]). 65 The question of whether the creditors bound by a DOCA will be "better off" in a winding up is significant to the question of whether the deed involves relevant unfairness: TNT Building Trades Pty Ltd v Benelong Developments Pty Ltd (administrators appointed) [2012] NSWSC 766 at [43]. The question of fairness requires the Court to consider the whole circumstances of a case and evaluate whether there is overall unfairness in the proposal: Hagenvale Pty Ltd v Depela Pty Ltd And Another (1995) 17 ACSR 139 at 151.

Section 445D(1)(f)(ii) - contrary to interests of the creditors as a whole 66 Section 445D(1)(f)(ii) will be satisfied if the deed, or a provision of it, is contrary to the interests of the creditors of the company as a whole. Although there are two limbs to s 445D(1)(f), the subsection is often considered in combination as there are overlapping factors relevant to a consideration of each limb. In TiVo, Inc v Vivo International Corporation Pty Ltd (subject to deed of company arrangement) [2014] FCA 789, Gordon J, then a judge of this Court, said at [54]: 54 In deciding whether a DOCA is oppressive, unfairly prejudicial and/or unfairly discriminatory, and/or contrary to the interests of the creditors as a whole, the courts have regard to factors including: 1. the object of Pt 5.3A; 2. the interests of other creditors, the company and the public; 3. the comparable position of the creditor on a winding-up, compared with their position under the deed; and 4. other relevant facts such as the relative position of all creditors under the deed (ie whether they are better off), the existence of a collateral benefit to the shareholders and the whole of the effect of the deed. … 67 For the purpose of s 445D(1)(f)(ii), it is not necessary to establish, on the balance of probabilities, that if the company is placed in liquidation the creditors will receive a better return. It is sufficient that there is a not unrealistic prospect that there may be a better return to creditors on a winding up than under the deed - that there is a serious case for the recovery of assets in a liquidation that would result in a better return to creditors: Britax Childcare Pty Ltd v Infa Products Pty Ltd [2016] FCA 848; (2016) 115 ACSR 322 at [93] to [94]. 68 The question of whether there is a "not unrealistic prospect" of a better recovery in a liquidation is relevant to the question of whether a deed is in "the best interests of the creditors of the company as a whole", assessed in light of all the circumstances: Shafston Avenue Construction Pty Ltd v McCann [2020] FCAFC 85 at [91]; Decon at [165]. There are numerous other factors that the Court may take into account in determining the extent to which a deed is or is not in the best interests of the creditors of the company as a whole: Shafston Avenue Construction at [91].

Role of the Administrator 69 In the context of applications to terminate a DOCA made under s 445D(1), the administrator is the appropriate person to perform the function of contradictor. However, that is subject to the proviso that it is proper in the circumstances for the administrator to make an active defence: Sydney Land Corporation Pty Ltd v Kalon Pty Ltd (1997) 142 FLR 188 at 189; Cresvale Far East v Cresvale Securities (No 2) [2001] NSWSC 791 at [77]. Where it is appropriate to make an active defence, the administrator stands in a similar position to a liquidator who is defending an "appeal" from a decision to reject a proof of debt of a putative creditor. In such a case, the liquidator is in the role of an adversary, cast in the role of defending the assets available for distribution, but while adversarial, the liquidator is nonetheless "required to act fairly in conducting the litigation": Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332 at 340 to 341. 70 Where, as here, the administrator undertakes an active defence of an application to terminate a DOCA, the Court is entitled to assume that the administrator has formed the view that to do so is consistent with the administrator's duty to act independently and impartially in the administration of that company's affairs. Further, the Court is entitled to assume and expect that the administrator will conduct the defence fairly. It is incumbent upon administrators to ensure that information within their knowledge that is relevant to the Court reaching a just outcome is brought to the attention of the Court. If that is not through direct tender of evidence of that information, then it must be by disclosure of that information to the party seeking to challenge the deed of company arrangement. Consistently with the duty to act fairly and impartially discussed in Bovis Lend Lease v Wily at [123] to [141], the submissions advanced by an administrator on an application such as this must be balanced, accurate and not one-sided.

Principles relevant to exercising the discretion 71 There are many factors that the Court will take into account when considering if the discretion to terminate a DOCA, once enlivened, should be exercised. Many of the relevant factors in the authorities relate to the interests of creditors as a whole on the one hand, and the public interest on the other. Public interest may be understood as whether the continuation of the DOCA is conducive or detrimental to commercial morality and to the interests of the public at large. The Court must carefully balance the interests of creditors with the public interest in considering whether it is appropriate to exercise the discretion to terminate a DOCA. 72 The following non-exhaustive list of factors, drawn from the authorities, are relevant to the exercise of the Court's discretion: (1) Whether the creditors voted to enter into a DOCA, noting that creditors are generally taken to be in a better position to judge what is in their best interests than the Court; (2) Whether the vote is carried by the votes of related creditors whose interests are not aligned with the unrelated creditors; (3) Whether the information base upon which the creditors voted was materially flawed whether because it was false, misleading or otherwise omitted information; (4) The degree to which false, misleading or omitted information had, or is likely to have had, an influence on the manner in which creditors voted; (5) Whether creditors would be better off under a DOCA or in a liquidation; (6) Whether the dividend under a DOCA is likely to be insignificant; (7) Whether the continuation of the DOCA would have the effect of eroding commercial morality or public confidence in financial systems; and (8) Whether the effect of the DOCA, once implemented, would be to permit an insolvent company to continue to trade, contrary to the public interest. See further discussion in Bidald at [208], [273] to [276], [282], [286] to [292]; Re Sales Express Pty Ltd [2014] NSWSC 460 at [20] to [28]; Fleet Broadband Holdings Pty Ltd v Paradox Digital Pty Ltd [2005] WASC 261 at [62]; TNT Building at [43]; TiVo at [60] to [62]; Commissioner of Taxation v Comcorp Australia Ltd and others (1996) 70 FCR 356 at 400; Greek Orthodox Community of Oakleigh and District Inc v Pizzey Noble Pty Ltd (admin apptd) and others (1997) 23 ACSR 274 at 282. 73 The list of factors relevant to the Court's exercise of the discretion is not closed. As s 445D(1) involves a discretion that must be exercised judicially, any factor that is relevant to the exercise of the discretion, having regard to the purpose of Part 5.3A of the Act, may be taken into account. There are many factors that the Court will take into account when considering if the discretion to terminate a DOCA, once enlivened, should be exercised. Some of the relevant factors are the same or similar to those which are taken into account in determining if the deed or a provision of it is oppressive, unfairly discriminatory, unfairly prejudicial or contrary to the interest of the company's creditors as a whole under s 445D(1)(f) of the Act.

Balancing the competing interests 74 As mentioned, there is a balance to be struck between the interests of the creditors, on the one hand, and the interests of the public, on the other. In TiVo, Gordon J said at [60] to [62]: 60 The Court's power under s 445D(1) is discretionary. There is some authority that the 'primary consideration' is the interest of creditors: Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd (2005) 226 ALR 510 at [272]. What is clear is that the discretion is to be exercised having regard not only to the interests of creditors as a whole but also the public interest: Emanuele v Australian Securities Commission (1995) 63 FCR 54 at 69-70; Deputy Commissioner of Taxation v Portinex Pty Ltd (subject to deed of company arrangement); Deputy Commissioner of Taxation v Silindale Pty Ltd (subject to deed of company arrangement); Deputy Commissioner of Taxation v Dalvale Pty Ltd (subject to deed of company arrangement) (2000) 34 ACSR 391 at [105] and Bidald at [287]. 'Public interest' includes, in this context, whether the continuation of the DOCA is conducive or detrimental to commercial morality and to the interests of the public at large: Emanuele at 69 citing Re Data Homes Pty Ltd (in liq) and the Companies Act [1972] 2 NSWLR 22 at 26. The Court has a duty with regard to the commercial morality of the country. That duty is longstanding and exists in relation to schemes of arrangement (Re Alabama, New Orleans, Texas and Pacific Junction Railway Co [1891] 1 Ch 213 at 229-230 and 239 and Re Mascot Home Furnishers Pty Ltd (in liq); Re Spaceline Industries (Australia) Pty Ltd (in liq) [1970] VR 593 at 596), the bankruptcy of an individual (see Re Telescriptor Syndicate Ltd [1903] 2 Ch 174 at 180-1, Re Flatau [1893] 2 QB 219 at 223 and Re Zero Population Growth (Formerly David Roy Hughes) (unreported, Federal Court of Australia, Burchett J, 30 May 1990) at pg 4), the winding up of a company (Re Denistone Real Estate Pty Ltd and Companies Act [1970] 2 NSWR 327 at 329; Re Data Homes at 26 and Keay AR, McPherson's Law of Company Liquidation, (3rd ed, Sweet & Maxwell, 2013) [17-007]) and deeds of company administration (Emanuele at 69). 61 Two statements in Re Hester (1889) 22 QBD 632 are worth restating. At 639 Lord Esher MR stated: [The Court] will consider not only whether what is proposed is for the benefit of the creditors, but also whether it is conducive or detrimental to commercial morality and to the interests of the public at large ... And at 641 Lord Justice Fry stated: It is an idle notion that the Court is bound by the consents of the creditors. The Court has far larger and more important duties to perform than merely to consider whether the creditors have consented to the rescinding of the order. We are bound in the exercise of our discretion in such a matter, and I think I might almost say in all matters under this Act, to take a wider view. We are not only bound to regard the interests of the creditors themselves, who are sometimes careless of their best interests, but we have a duty with regard to the commercial morality of the country. 62 In Re Flatau at 222-223, Lord Esher MR referred to his judgment in Re Hester in these terms: 'The cases are clear that the Court is not bound by the consent of all the creditors. Although the consent of all the creditors has been obtained, the Court will still consider whether what they have agreed to' (that is, all the creditors) 'is for the benefit of the creditors as a whole, 'that is, for their benefit, although they have consented. The Court will protect them against their own carelessness and folly, because we know perfectly well that over and over again the creditors of a debtor are quite willing to write off their debts as bad, to write off the whole thing, and let the debtor begin again, and incur fresh debts. … Although the context was different, the statements by the Master of the Rolls and Lord Justice Fry are equally applicable to the exercise of the discretion under s 445D(1).

REASONS OF THE PRIMARY JUDGE 75 It is sufficient in the context of the present appeal to focus on those parts of the primary judgment that are relevant to grounds 3 and 4 of the appeal.

Application under s 445D(1)(a) and (c) - relevant to ground 3 76 The Sino Creditors submitted that the Administrators' Report was materially misleading in three ways. The primary judge summarised the Sino Creditors' contentions based on s 445D(1)(a) of the Act as follows (PJ [136] to [139]). 77 First, the Administrators' Report substantially underestimated the Sino Creditors' claim against Gymbaroo and, thereby, overestimated the return that the other unrelated creditors would receive under the DOCA - full payment, as opposed to payment of a small portion only, of the other unrelated creditors' claims: PJ [137]. The primary judge concluded that the Sino Creditors' contention was premised on the substantiation of their damages claim against Gymbaroo, a premise which the primary judge did not accept: PJ [137]. 78 Secondly, the costs of the administration or winding up were underestimated and, as a result, the Administrators' Report overestimated the return to creditors and was misleading in this sense: PJ [138]. The primary judge rejected this contention because his Honour found that the Administrators' Report stated the assumptions which underpinned the Administrators' estimate of the return in both scenarios: PJ [138]. The primary judge referred to page 28 of the Administrators' Report and expressly referred to the Administrators' assumptions as including that (1) fees would not exceed $500,000 "in a best case scenario"; and (2) there be "no ongoing or other litigation": PJ at [138]. The assumptions to which the primary judge referred were made in the context of the winding up scenario; the relevant part of page 28 is extracted at paragraph [45] above. The primary judge noted that it was expressly stated that "if the Sino Creditors disputed the assessment of their claim, legal fees and disbursements were likely to be higher". This appears at page 27 of the Administrators' Report as one of the assumptions for the DOCA proposal; the relevant part of page 27 is extracted at paragraph [44] above. On this basis, the primary judge concluded that the Administrators' Report was not misleading as to the estimated return to creditors under both scenarios once the costs of administration were taken into account: PJ [138]. 79 Thirdly, the estimated realisation on the sale of Gymbaroo's business was underestimated and, thereby, the likely return which all creditors would receive in a winding up of Gymbaroo was also underestimated: PJ [139]. The primary judge rejected the Sino Creditors' submission, finding that the Sino Creditors had failed to substantiate their claim that the Administrators' Report understated the likely value on realisation of Gymbaroo's business: at PJ [139].

Application under s 445D(1)(f)(i) or (ii) - relevant to ground 4 80 In addressing the Sino Creditors' application under s 445D(1)(f) of the Act, the primary judge said that the Sino Creditors' principal complaint was that the DOCA extinguished the Sino Creditors' claim, but preserved the Related Party Creditors' debts. The primary judge concluded that extinguishment of the Sino Creditors' claims was not unfairly discriminatory against them for the following reasons (PJ [146] to [148]): 146 The submission ignores the evidence that the related parties had entered into a deed of subordination and forbearance on 11 April 2022, which provided for the related party debts to be subordinated to the debts of the unsubordinated creditors for a period of three years, to 11 April 2025. As a consequence, the Company and Dr Williams agree not to prove or claim its debts in competition with any unsubordinated creditor in the event of the Company's insolvency or liquidation. 147 For the reasons already given, I do not accept that the Sino Creditors have established that they have a 'very substantial damages claim against the Company'. 148 I also reject this claim that the DOCA is unfairly discriminatory or unfairly prejudicial to the interests of the Sino Creditors. Under the terms of the DOCA, the related party creditors agree not to participate in the distribution so that the dividend available to Participating Creditors is increased. Further, as a consequence of the operation of the deed of subordination, the related party creditors agree, as outlined above, to subordinate their debt to the debts of the unsubordinated for a period of three years. I am satisfied on the evidence that the non-participation of the related party creditors increases the pool of funds available to Participating Creditors. The evidence is that under the terms of the DOCA, on the basis of the proofs as assessed by the Administrators, unsecured creditors stand to receive an estimated 100 cents in the dollar. I have found the Sino Creditors have not established that they have a substantial damages claim against the Company and that Mr Rathner was justified in admitting the Sino Creditors' damages claim for $1. I have also found that the quantum of the Sino Creditors' alleged damages claim rises no higher than mere assertion. The Sino Creditors did not establish on the evidence that they will be worse off under a DOCA than in an immediate liquidation of the Company. Accordingly, I find that the DOCA is not unfairly discriminatory or unfairly prejudicial to the Sino Creditors. (emphasis added) 81 It is evident from the last passage quoted from the primary judge's reasons (PJ [148]) and in other parts of his reasons (PJ [142]) that the primary judge accepted the Administrators' submission to the effect that "under the DOCA, unrelated creditors stood to receive an estimated 100 cents in the dollar". In reaching the conclusions expressed at PJ [148], the primary judge accepted and gave weight to the submissions the Administrators made concerning the estimated returns to unrelated creditors set out in an aide memoire that was handed up in the proceedings below. We will return to the aide memoire in considering the fourth ground.

Application under s 75-41 of the IPS 82 It is necessary to address one aspect of the primary judge's reasons in relation to the Sino Creditors' application under s 75-41 of the IPS in the context of the fourth ground. It will be recalled that the primary judge's rejection of the claim under s 75-41 of the IPS is challenged by the fifth ground. It is relevant to the fourth ground because the respondents submit that it can be inferred, based on the primary judge's reasoning in relation to the claim under s 75-41 of the IPS, that even if the primary judge was satisfied that the discretion under s 445D(1) was enlivened (which his Honour was not), his Honour would in any event have declined to exercise the discretion to terminate the DOCA. The respondents rely on the following portion of the primary judge's reasons in relation to s 75-41 (PJ [157] to [158]): 157 The Sino Creditors accept that there is a significant overlap and parity of consideration between s 75-41 of the Insolvency Practice Schedule and the question of whether a DOCA is oppressive or unfairly prejudicial or discriminatory for the purpose of s 445D(1)(f)(i) of the Act. The Sino Creditors rely upon the same matters that they relied upon under s 445D to submit that the Court ought exercise its discretion to set aside the DOCA resolution. 158 For the same reasons that I rejected terminating the DOCA under s 445D as variously stated in my Reasons above, I will not exercise my discretion under s 75-41 of the IPR to set aside the DOCA resolution. 83 The Sino Creditors contend that the primary judge did not proceed to consider whether to exercise the discretion to terminate the DOCA under s 445D because, not being satisfied that the conditions in s 445D(1) were established, the discretion was not enlivened. The primary judge did not state, in terms, that he had declined to exercise the discretion. The respondents submit that on a fair reading of the primary judge's reasons it is open to conclude that, had any of the s 445D(1) grounds been established, the primary judge would have declined to exercise the discretion on the s 445D application. The respondents rely on the primary judge's statement at PJ [158] that for "the same reasons that I rejected terminating the DOCA under s 445D as variously stated in my Reasons above, I will not exercise my discretion under s 75-41 of the IPR (sic) to set aside the DOCA resolution". We reject the respondents' submissions. 84 It is tolerably clear that the primary judge did not proceed to the second stage of considering whether to exercise the discretion under s 445D and to conclude, as the respondents urge, that had the primary judge been satisfied that the discretion was enlivened, he would have declined to exercise it, invites speculation. What the primary judge would have done if he reached the requisite state of satisfaction as to the discretion being enlivened would depend on the jurisdictional facts found. For the reasons given at [87] to [88] below, if House v R error is established such that the discretion is enlivened then it falls to this Court to exercise the discretion on the basis of the jurisdictional facts which are established.

GROUNDS OF APPEAL 85 The grounds of appeal are summarised above. It is sufficient for present purposes to extract in full only grounds 3 and 4: 3. Further, the primary judge: (a) erred in not finding ([J] at [137] - [139]) that: (i) information about the Company's business, property, affairs or financial circumstances that was false or misleading, and can reasonably be expected to have been material to creditors of the Company in deciding whether to vote in favour of the resolution that it execute the DOCA, was given to those creditors within the meaning of section 445D(1)(a) of the Act; and/or (ii) there was an omission from the Administrators' report to creditors accompanying the notice of the meeting (Annexure GIR-33 to Rathner 6) (Report) that can reasonably be expected to have been material to such creditors in so deciding within the meaning of section 445D(1)(c) of the Act; and (b) should have found that such false or misleading information was given to creditors, and/or there was such an omission from the Report, in that the estimated return to participating creditors under the DOCA would not be 100 cents in the dollar once the following were taken into account: (i) the value of the Sino Creditors' damages claim against the Company for breaches of the master licence agreement ([J] at [137]); and/or (ii) the likely Administrators' and Deed Administrators' costs ([J] at [138], [148]). 4. Further, the primary judge: (a) erred in failing to apply the correct test under section 445D(1) of the Act in respect of the interests of creditors, namely, whether there would likely be a return to the Company's creditors on a winding up that is better than under the DOCA; and (b) should have found that the DOCA was contrary to the interests of the Company's creditors as a whole under section 445D(1) of the Act and/or within the meaning of s 445D(1)(f)(i) or (ii) of the Act on the basis that there would likely be a return to the Company's creditors on a winding up that is better than under the DOCA in circumstances where ([J] at [148]): (i) the Administrators had received a $1.15 million arms-length offer for the Company's assets (including trade debtors) in a short time frame following an expression of interest campaign ([J] at [153]) and relied on a valuation of the Company prepared by its accountants for $1 million (not including trade debtors) as at 30 June 2021 based upon estimated maintainable EBITDA of $400,000 per annum with an earnings multiple of 2.5 times (Annexure GIR-20 to Rathner 4); and (ii) the related parties had entered into a deed of subordination and forbearance on 11 April 2022 (after the first day of trial) which provided for their debts to be subordinated to all other debts of the Company for a period of three years, to 11 April 2025, and the related parties would not prove or claim for their subordinated debts in competition with any other creditors of the Company in the event of the Company's insolvency or liquidation ([J] at [146]). 86 If either or both of the third and fourth grounds succeed, such that the Court concludes that the primary judge erred in finding that the conditions in s 445D(1) were not met and the discretion to terminate the DOCA was in fact enlivened, then it will be necessary for this Court to decide whether the discretion should be exercised to terminate the DOCA.

LEGAL PRINCIPLES: APPELLATE REVIEW OF DECISIONS UNDER S 445D 87 Appellate review of a decision made under s 445D of the Act is confined by the principles in House v R. In Decon Australia Pty Ltd v TFM Epping Land Pty Ltd [2022] FCAFC 54 at [144] to [147], the Full Court said: APPELLATE REVIEW UNDER S 445D(1) 144 Section 445D involves a two stage process. The first stage is to determine whether one of the grounds referred to in sub-s (1) has been established and, if it has, the second stage is to decide whether to exercise the discretion to terminate the DOCA based on that ground. See Britax Childcare Pty Ltd v Infa Products Pty Ltd [2016] FCA 848; (2016) 115 ACSR 322 (Burley J) at 342 [90]; Shafston Avenue Construction Pty Ltd v McCann [2019] FCA 1426; (2019) 138 ACSR 299 at 336 [130] (Reeves J). In this case, as is tolerably clear from his Honour's reasons, he found that none of the s 445D(1) grounds relied upon by Decon was established, so he did not proceed to the second stage. 145 In determining whether it is satisfied of any of the criteria set out in s 445D(1), a court makes an objective evaluation of the relevant circumstances viewed as a whole. Accordingly, appellate review of a decision made under that provision is confined by the principles in House v The King (1936) 55 CLR 499 at 504-505 in respect of discretionary decisions, viz: The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred. 146 As the Full Court said in Wilmar Sugar Australia Ltd v Mackay Sugar Ltd [2017] FCAFC 40; (2017) 345 ALR 174 at 189 [46] in the context of s 232 of the Act (oppressive conduct), 'it is the character of the decision, involving as it does the weighing of potentially competing considerations and an overall contextual evaluation of the effect of the conduct, which requires the same approach to appeals as in [House v R]'. 147 As Mason CJ and Deane and McHugh JJ explained in Singer v Berghouse (1994) 181 CLR 201 at 212 (quoting Kirby P in Golosky v Golosky [1993] NSWCA 111) an appeal from a decision on a jurisdictional question of this type should be governed by the principles that regulate appeals from decisions made in the exercise of a discretion because: [u]nless appellate courts show restraint in disturbing the evaluative determinations of primary decision makers they will inevitably invite appeals to a different evaluation which, objectively speaking, may be no better than the first. Second opinions in such cases would be bought at the cost of diminishing the finality of litigation in a troublesome area and, sometimes at least, with a burden of costs upon the estate which should not be encouraged. 88 This is an appeal by way of rehearing: s 27, Federal Court of Australia Act 1976 (Cth) (FCA Act). If House v R error is established, this Court is in as good a position as the primary judge to determine the proper inferences to be drawn from undisputed facts or the facts as established and, after giving due respect and weight to the conclusions of the primary judge, if the conclusion is considered wrong, this Court should not shrink from giving effect to it: Fox v Percy [2003] HCA 22; (2003) 214 CLR 118 at [25]; Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; (2001) 117 FCR 424 at [28].

Ground 3 89 The third ground asserts that the primary judge erred in not finding that the Administrators' Report was materially misleading or omitted material information within the meaning of ss 445D(1)(a) and 445D(1)(c) of the Act where it estimated that unrelated creditors would receive a return of 100 cents in the dollar. It is alleged that this material is misleading because it failed to take into account the true value of the Sino Creditors' claims for breach of the MLA and / or the likely Administrators' costs of the administration and administering the DOCA. It is sufficient to address the latter of the two particulars which is directed to the likely costs of the DOCA and how this impacted the headline comparator of 100 cents in the dollar. 90 The Administrators' Report states that the estimated return of 100 cents in the dollar in the DOCA scenario is based on certain assumptions. These include that the Sino Creditors do not dispute the assessment of their claims and that there is no continuing or other litigation. Further, that the Administrators' "fees do not exceed $310,000 in a best case scenario" (page 27, Administrators' Report). Although identifying assumptions upon which the estimate is based, the statement: "It is estimated that under the proposed DOCA, Participating Creditors will receive a dividend of 100 cents in the dollar" is not qualified. There is no statement of the relative probability of the best case scenario eventuating, or the risk that it may not eventuate. Further, in relation to the DOCA, there is no comparison between a best case and a worst case scenario. The report gives the reader the impression that the Administrators considered that the best case scenario was the most likely outcome if the DOCA proposal was accepted. 91 The approach taken in relation to the DOCA may be contrasted with the Administrators' approach to the winding up scenario. First, the estimated return to creditors on a winding up is expressly qualified by a statement that "it is likely that". In the case of the DOCA, the estimate was not qualified by any words expressing probability. This contrast leaves the reader with impression that the DOCA estimate of 100 cents in the dollar is more than merely likely. Secondly, the estimated return in the winding up scenario is expressed as a range. In that way, creditors were able to readily compare the difference between the best and worst case scenarios for a winding up. That comparison was not provided in the case of the DOCA, creating the impression that the worst case was not a likely outcome. 92 The absence of a comparison in the case of the DOCA also deprived creditors of a means of readily comparing the range of outcomes for the DOCA against the range of outcomes for winding up. The only return estimated in respect of the DOCA was 100 cents in the dollar. To state that figure in isolation as the estimated DOCA return amplifies its inherent persuasive force. If the worst case scenario had been included in the Administrators' Report, the range of outcomes for the DOCA, based on the Administrators' assumptions as revealed by the Administrators' Report and the Remuneration Report, would have been between 100 cents in the dollar and 38 cents in the dollar. That is illustrated by the following table: Description Administrators' Report DOCA estimated return DOCA worst case estimate - not included in the Administrators' Report Deed Fund $600,000 $600,000 LESS Estimated Administrator fees $310,000 $487,526 Priority creditor $3,879 $3,879 SUBTOTAL [$286,121] [$108,595] Participating unsecured creditors receive $285,178 $108,595 Balance to company $1,925 Nil Participating unsecured creditors' dividend 100% 38% $108,595 / $285,178

93 The estimated administrator fees used in the DOCA worst case estimate above ($487,526) is based on the amount in respect of which the Administrators sought approval in the Remuneration Report in the event the DOCA was approved: voluntary administration ($306,787.70) plus for the DOCA ($180,738.25): see paragraphs [47] to [48] above. 94 The participating unsecured creditors' claims in the sum of $286,121 is as per the analysis in the Administrators' Report: Unsecured $13,539 $285,178 Credit card $27,186 ATO - running account balance Trade creditors $82,806 Sino after set off counter claim) $161,647

95 Neither the Administrators' Report, nor the Remuneration Report, discloses that by the time these reports were issued, the Administrators had commenced proceeding VID 732 of 2021 and the Sino Creditors had applied to remove the Administrators by interlocutory application. The Administrators' Report does not disclose if, or the extent to which, the estimated fee of $310,000 includes the legal costs of VID 732 of 2021. The absence of that information from the Administrators' Report tends to reinforce the impression that a return of 100 cents in the dollar in the DOCA scenario was very likely, or so much more likely than the worst case scenario that it was not necessary to provide a comparison based on the worst case scenario. The opacity of the information given in relation to the worst case in the DOCA scenario is not dispelled by the Remuneration Report. The Administrators explain in their Remuneration Report that the "capped" amount of $310,000 used in the Administrators' Report was based on "no further court matters" and that they "cannot confirm if there will be any further court matters in relation to Sino under a Deed of Company Arrangement scenario". In order to protect their position in relation to fees, the Administrators sought approval of their fees in a DOCA scenario on a worst case scenario - a scenario which was not expressly referenced in the Administrators' Report. Yet it was in the Administrators' Report that one would expect to find the relevant information to enable creditors to undertake a critical comparison of the DOCA as against a winding up for the purpose of exercising their vote. 96 Schedule A to the Remuneration Report gives details of work that would be required to be performed from execution to completion of the DOCA, irrespective of whether or not there was ongoing litigation involving the Administrators. The estimated costs in the event of the Sino Creditors disputing the Administrators' estimate of their claim or continuing or commencing other litigation is $140,835. That is, the Administrators estimated additional costs of, at least, $39,903.25 ($180,738.25 minus $140,835) in the absence of any further disputes. The other costs of the administration for which the Administrators sought approval were in the sum of $306,787.70, a figure very close to the estimate of $310,000 contained in the Administrators' Report. In circumstances where the Administrators were seeking approval for an additional amount of about $40,000, excluding the costs associated with any further dispute, the costs estimate on which the statement that creditors would receive 100 cents in the dollar ($310,000) was based, was not supported by the Remuneration Report. In any event, the Administrators' Report does not disclose that estimated costs of about $40,000 would be incurred in the administration of the DOCA, in addition to the estimated costs of $310,000 referred to in the Administrators' Report. 97 It is next necessary to address the Sino Creditors' application for the Court to receive further evidence on this appeal. These documents are relevant to the issue of whether the information given in relation to the Administrators' fees rendered the DOCA estimate of 100 cents in the dollar misleading.

Application to receive further evidence in the appeal 98 The Sino Creditors applied to the Court to receive five documents in the appeal that were not tendered in evidence before the primary judge. The application was opposed. 99 The Court has a discretion to receive further evidence in an appeal under s 27 of FCA Act and r 36.57 of the Federal Court Rules 2011 (Cth). The applicable principles are well-established. 100 The power is not limited to "fresh" evidence. The power should be construed liberally, although it is not unfettered, and is to be exercised having regard to the subject matter, scope and purpose of s 27 of the FCA Act. That includes having regard to the overarching purpose of the civil practice and procedure provisions described in s 37M of the FCA Act. The discretion must be exercised judicially and s 27 should not be construed in such a way as to obliterate the distinction between original and appellate jurisdiction. The power is remedial. An important consideration in determining whether it should be exercised is whether, if the further evidence had been available at the trial, it would have produced, or at least would be likely to have produced, a different result: see for example, CKT20 v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs [2022] FCAFC 124 at [32] to [34] and the authorities cited therein. 101 The first document is an end of administration return lodged by the Administrators with the Australian Securities and Investments Commission on 21 April 2022 for the period from 22 November 2022 to 28 March 2022. The Sino Creditors seek to rely on that document to demonstrate that the Administrators received a sum of $129,315.69 on 25 March 2022, before the deed fund was established under the terms of the DOCA, that is not accounted for in the Administrators' Report and that certain other payments were made to the Administrators' solicitors in respect of VID 732 of 2021 that were not disclosed in the Administrators' Report or to the primary judge. We will not receive that document in the appeal, as the purpose of the payment of $129,315.69 and the extent which it was taken into account (if at all) in the estimate in the Administrators' Report is not self-evident and would require evidence from one or both of the Administrators to explain the significance of the payment. It is not evident that it would have made any difference to the outcome before the primary judge if it had been in evidence. 102 The second document is an invoice from Baker Jones (number 322), the solicitors acting for the Gymbaroo in VID 732 of 2021, dated 24 March 2022. That invoice is for $42,229.37 (excluding GST), comprising professional fees of $34,560.00 and disbursements of $7,669.37 in respect of VID 732 of 2021. It is clear on the face of the document that it relates to legal services performed in respect of VID 732 of 2021 before 24 March 2022, and likely before 18 March 2022. As explained earlier in these reasons, the existence of VID 732 of 2021 was not disclosed in the Administrators' Report. We will receive this document in the appeal as it is relevant to the accuracy of the estimate of the Administrators' costs stated in the Administrators' Report and the Remuneration Report. 103 The third and fourth documents are tax invoices of the Administrators' firm dated 25 March 2022 and 7 June 2022 in the sums of $271,731.60 (excluding GST) and $35,602.39 (excluding GST). These are for the Administrators' work from 22 November 2021 to 13 March 2022 and 14 March 2022 to 25 March 2022. The total of these invoices is $307,333.99, a figure very close to the amount for which approval was sought in the Remuneration Report for the work completed in that period. We will receive these documents in the appeal as, taken with the invoice from Baker Jones, they demonstrate that the costs of the Administration as of the date of the trial before the primary judge were known to be at least $349,663.36 as of the date of the second meeting of creditors, which is more than the estimate of $310,000 in the Administrators' Report. 104 The fifth document is a tax invoice of the Administrators' firm dated 7 June 2022 for the period 28 March 2022 to 31 May 2022, including work in progress details. We will not receive that document as further evidence in the appeal. As with the first document, the entries in it are not self-explanatory and do not bear directly upon the accuracy of the estimate in the Administrators' Report.

Sections 445D(1)(a) and (b) - false or misleading information 105 The statement in the Administrators' Report to the effect that it was estimated that unrelated creditors would receive a dividend of 100 cents in the dollar under the proposed DOCA was misleading. Although the assumptions underpinning that estimate were identified and creditors were able to determine the worst case scenario by reading the Administrators' Report together with the Remuneration Report, creditors were not directed to read the Remuneration Report for the purpose of undertaking their own analysis of the worst case in a DOCA setting. The Administrators' Report does not expressly state why the Administrators did not include a worst case comparison for the purpose of assessing the DOCA scenario, as they had done in the winding up scenario. The absence of a worst case analysis for the DOCA scenario, coupled with the lack of an explanation for why no worst case scenario was included, causes the Administrators' Report to convey the impression that a return of 100 cents in the dollar was highly likely, and that the worst case scenario was so unlikely it did not bear mention in the Administrators' Report. Ultimately, this rendered the estimated headline return of 100 cents in the dollar misleading both at the time it was made and in the context of the subsequent events that occurred before the hearing below. 106 The Administrators' Report was also misleading because it did not disclose that there was continuing litigation, VID 732 of 2021, and that costs had been incurred in those proceedings (in the sum of $42,229.37, excluding GST) that were not accounted for in the best case DOCA scenario estimate in the Administrators' Report. Likewise, the Administrators' Report did not take into account approximately $40,000 in costs that had been estimated would be incurred even if there were no continuing or future litigation or disputes. 107 These were material omissions because they significantly affected the headline comparator - 100 cents in the dollar under the DOCA versus 33 to 42 cents in the dollar under a winding up. The assumptions on which the headline comparator was based were not well-founded at the time of the Administrators' Report, and by the time of the hearing before the primary judge had further eroded. The absence of information about VID 732 of 2021 also deprived creditors of information that was material to gauging the relative risk of there being continuing or future disputes or litigation and the impact that this would have on the likelihood of the best case scenario eventuating. Similarly, the absence of a worst case comparison in the DOCA scenario, in the context of the inclusion of a worst case comparison in the winding up scenario, was a material omission within s 445D(1)(c). The absence of a qualification as to probability or likelihood in the headline comparator of 100 cents in the dollar for the DOCA estimate was also a material omission. 108 In our view, the primary judge erred in concluding that conditions necessary to enliven the Court's discretion to make an order terminating the DOCA under s 445D(1)(a)(i) and s 445D(1)(c) were not satisfied. The Sino Creditors having established a House v R error, it will be necessary for this Court to exercise the discretion afresh.

Ground 4 109 The fourth ground focuses on the position of creditors in the competing scenarios of the DOCA and a winding up in the context of the events that had occurred as at the date of the hearing below, particularly, having regard to the likely price for which the business could be sold and the effect of the Subordination Deeds. The Sino Creditors submit that the primary judge erred by applying the wrong test for the purposes of s 445D(1)(f) as to whether there would likely be a return to creditors on a winding up that is better than under the DOCA. Further, the Sino Creditors submit that the primary judge erred in failing to find that the DOCA was contrary to the interests of creditors as a whole on the basis there would likely be a better return to creditors on a winding up based on the value of the business if sold and taking into account the effect of the Subordination Deeds in a winding up scenario. 110 The position prior to the Subordination Deeds being executed was that Related Party Creditors were not entitled to participate in a dividend out of the deed fund. However, the debts of the Related Party Creditors were not extinguished. If the DOCA had been implemented without the Subordination Deeds taking effect then, on the basis of the financial statements contained in the Administrators' Report, Gymbaroo would remain insolvent after completion of the DOCA because the debts due to the Related Party Creditors remained due and payable. If that had remained the position as at the date of the hearing below, then the Sino Creditors' argument that the DOCA should be terminated on public policy grounds would have been compelling. 111 The object of Part 5.3A of the Act, and the IPS in so far as it relates to Part 5.3A, is to enable the business, property and affairs of an insolvent company to be administered in a way that maximises the chance of a company, or as much as possible of its business, continuing in existence or, if not possible, creating a better return for creditors and members than would result from an immediate winding up: s 435A. The general policy of the Act is that insolvent companies should not be permitted to continue to trade. Part 5.3A is consistent with this public policy. Accordingly, it would be contrary to the public policy served by the Act, and Part 5.3A in particular, for the Court to permit a DOCA to stand if the effect of the DOCA would be to permit an insolvent company to continue to trade, in circumstances where after implementation of the DOCA, the company would remain insolvent: Bidald at [260] to [264]. 112 As mentioned, the landscape changed at the end of the first day of the hearing below when the Related Party Creditors executed the Subordination Deeds. At the very least, it was incumbent upon the Administrators, acting impartially, independently and fairly, to consider if completion of the DOCA remained in the best interests of the creditors as a whole after the Subordination Deeds were made. The Administrators did not do that. Instead, they advanced a submission before the primary judge to the effect that, notwithstanding the Subordination Deeds, the unrelated creditors were in a better position under the DOCA, as at the hearing, than in a winding up and continued to stand to receive 100 cents in the dollar under the DOCA. 113 As a consequence of the Subordination Deeds, the assumptions that underpinned the Administrators' opinion as to the estimated return in a winding up were no longer valid as at the end of the first day of the hearing below. Although Gymbaroo remained indebted to the Related Party Creditors after the Subordination Deeds were made, their debts ceased to be presently due and payable. The financial position of Gymbaroo was thus markedly different to the position in which it had been at the time the Administrators were appointed. 114 The estimated return in a winding up in the Administrators' Report was as follows (page 27): 115 However, by entry into the Subordination Deeds, each Related Party Creditor agreed to subordinate his or her debt to the debts of all unsubordinated creditors for a period of three years. The Subordination Deeds are in identical terms. The drafting is somewhat basic but it is tolerably clear that by operation of clauses 4 and 5, each of the Related Party Creditors were precluded from competing with the non-related unsecured creditors in any winding up of Gymbaroo effected before 11 April 2025. If that assumption is fed into the estimated return in a winding up that was included in the Administrators' Report (extracted immediately above), the estimated range of returns would be as follows: 116 Therefore, on these assumptions, in each of the best and worst case scenarios the unrelated creditors would receive a return of 100 cents in the dollar on a winding up scenario, whereas the Related Party Creditors would receive approximately 23 or 33 cents in the dollar. However, the Administrators made a submission, based on an aide memoire provided to the primary judge, to the effect that the creditors remained "better off" under the DOCA as at the date of the trial. 117 The aide memoire was as follows: Deed of company arrangement scenario Deed Fund $600,000 Estimated costs and administration fees ($310,000) Fund available for distribution $290,000 Priority creditor - super $3,897 Fund for participating creditors $286,103

Liquidation scenario • Realisation of business as a going concern on a forced sale basis by liquidators • No certainty as to price Sale proceeds $1,000,000 Estimated costs of administration and liquidation ($700,000) including retake control of business, trade-on and sell Cost of further sale campaign ($35,000) Fund available for distribution $265,000 Priority creditor - super $3,897 Wages and leave $16,448 Fund for participating creditors $244,655

118 The Administrators' submissions to the primary judge, which were accepted by the primary judge, were as follows: MR FREIRE: The submissions I now wish to make. And this is the issue of the comparison of the return to creditors. And this is an issue which in my submission is possibly the predominant factor to be taken into account in the exercise of your Honour's discretion, and that is the comparative prospects of recovery under the DOCA as compared to a winding-up. And the - I wanted to compare the scenario under the DOCA. The DOCA provides for the creation of a deed fund of $600,000. … MR FREIRE: The estimated costs and fees of $31,000 (sic)- your Honour will see that that number comes from the second report to creditors, specifically at court book 1450. That leaves a fund available for distribution to creditors of $290,000. Priority creditors are a nominal amount. The fund available is, in round terms, $286,000. … MR FREIRE: I want to compare that with the liquidation scenario. There's a few distinguishing features of a liquidation scenario. In a liquidation scenario, it will be, as opposed to a - an administration, which is a distressed sale, a sale of an asset in a liquidation is not only a distressed sale, it's a forced sale. The liquidator has to sell for the best possible price available. … MR FREIRE: And so, in order to sell this price, the liquidators - to sell this business, the liquidators need to sell it as a going concern on a forced sale basis and in circumstances where there is no certainty as to the price. Now, we have assumed the sale proceeds are $1 million, which reflects the valuation which was obtained by the administrators before their appointment. There is the valuation - the offer -indicative offer of 1.15. It's now off the table and there's no guarantee that that offer would have been firmed up or that it's any longer available and the - that offer is vastly superior to the four other offers that were received by the administrators through the expression of interest - - - 119 It is necessary to make the following observations about the aide memoire and the submissions made to the primary judge in respect of it. First, the estimated costs and administration fees, as at the date of the trial, exceeded $310,000. That is, as of the date of the trial, the Administrators' solicitors had rendered an account for VID 732 of 2021 for $42,229.37 and the Administrators' fees were $307,333.99. Secondly, as at the date of the trial, the assumption upon which the $310,000 estimate was based, namely that there would be no further dispute involving the Sino Creditors, was manifestly no longer applicable, if it ever had been. 120 Thirdly, in contrast to the DOCA scenario, the assumptions underpinning the winding up scenario had been updated to reflect the state of the evidence that had been given at the trial. The value of the sale proceeds had been reduced to $1,000,000, from $1,150,000, reflecting evidence given at the trial. The cash at bank estimate had been removed (reduced from $300,000 to nil), which reflects evidence given at the hearing below. The additional costs for a further sales campaign were added and costs of wages and leave were also added. 121 Fourthly, the winding up scenario utilised the estimated costs from the worst case scenario ($700,000) whereas the DOCA scenario utilised the estimated costs from the best case scenario ($310,000). That is, the aide memoire was used to advance a comparison which was based on inconsistent assumptions. The DOCA scenario was based on an assumption of no future or continuing litigation whereas the winding up scenario assumed there would be further litigation. 122 If the worst case scenario under a DOCA is applied ($486,526), the estimated return to unrelated creditors reduces to 38 cents in the dollar. That compares to an estimated return in the aide memoire of 85 cents in the dollar in a winding up ($244,655 divided by $285,178). If the costs of VID 732 of 2021, as known at the hearing date, are added to the worst case scenario for the DOCA the estimate return falls to 24 cents in the dollar. 123 In these circumstances, the submission made to the primary judge to the effect that, as at the date of the trial, unrelated creditors would receive 100 cents in the dollar was not supported by the evidence then available. Consistently with the Administrators' duty of independence, impartiality and fairness, the disconcordance in the underlying assumptions informing the two scenarios addressed by the aide memoire should have been clearly exposed. That it was not has led the primary judge into House v R error which opens the door to appellate review. 124 The Sino Creditors submit that in deciding whether the DOCA unfairly prejudiced or discriminated against the Sino Creditors or a group of Gymbaroo's creditors, the primary judge was required to consider what the purportedly prejudiced creditors would receive, or would be likely to receive, on a winding up, and the reasonableness of any conclusions reached by the Administrators on that question. The Sino Creditors submit: 33. The recommendation that creditors accept the DOCA proposal (instead of a sale) was premised upon there being significant related party creditors who had agreed not to participate in a DOCA, but who would be entitled to prove in a winding up. Unlike for participating creditors, the DOCA does not provide for any discharge, release or extinguishment of the Claims of the [Related Party Creditors]. Relevantly, the Company became insolvent as a result of the four related party creditors (i.e., the excluded creditors) ceasing to provide financial support for the business by not calling up their loans and deferring payment of wages. 34. But as noted above, after the first day of trial, the related parties entered into a deed of subordination and forbearance on 11 April 2022. These deeds were tendered on the second day of trial. As a consequence, the related parties agreed not to prove or claim its debts in competition with any unsubordinated creditor in the event of the Company's insolvency. 35. This had a clear consequence; namely that the Court was now in a position to consider the potential sale of the business for a significantly greater sum that the Deed Fund ($1.15m v $0.6m) without also having to take into account the impact which the related parties claims would have otherwise had in participating in any distribution to creditors under a liquidation scenario. However, the Court declined to accept that in the circumstances before the Court it was now always in the interests of creditors to take the larger sum; the sale of the business over the smaller Deed Fund. 36. The trial judge failed to draw the proper inference from the undisputed facts. Given the Administrators had received a $1.15 million arms-length offer for the Company's business in a short time frame following an expression of interest campaign and with the related parties' significant debts no longer a relevant consideration, the DOCA should have been terminated for the benefit of all creditors so that the business could be sold at arms-length rather than returned to the related parties for an inferior sum. 125 While the amount that may be realised on the sale of Gymbaroo's business was necessarily uncertain, as opposed to the certainty of the amount of the deed fund, after the Related Party Creditors made the Subordination Deeds, that level of uncertainty was significantly less important. 126 In our view, after the Related Party Creditors made the Subordination Deeds, the assumptions which informed the Administrators' recommendation that the creditors vote in favour of Gymbaroo executing the DOCA were substantially eroded. There was no longer justification for the view that the DOCA would result in a better outcome for creditors as a whole based on the "best case scenario" referred to in the Administrators' Report. A comparison between the "worst case" scenarios under the DOCA and winding up revealed that, even taking into account the uncertainty of the sale price that may be realised for Gymbaroo' business, unrelated creditors were likely in a better position in a winding up scenario than in a DOCA scenario. The primary judge erred in failing to reach that conclusion or draw the correct inference from the established or undisputed facts. 127 After execution of the Subordination Deeds, the DOCA was oppressive, or unfairly prejudicial to, or unfairly discriminatory against, the unrelated creditors as a class of creditors because it would result in the extinguishment of the unrelated creditors' claims against Gymbaroo in circumstances in which there was a reasonable prospect that they would receive a better return in a winding up. The primary judge erred in failing to apply the correct test to assess whether creditors would get a better return in a DOCA as opposed to a winding up on the evidence as at the date of the hearing and in concluding that the DOCA was not contrary to the interests of Gymbaroo's creditors as a whole on a correct understanding of the facts. Alternatively, the relevant House v R error could be categorised as the primary judge failing to take into account a relevant consideration, namely, the effect of the Subordination Deeds on the likely return to unrelated, unsecured creditors or by taking into account an irrelevant consideration, being the incorrect assessment of likely DOCA return to unrelated, unsecured creditors following the execution of the DOCA. 128 The Administrators' submissions concerning the likely returns under the DOCA obscured the significance of the Subordination Deeds from the primary judge in terms of the impact these deeds had on the unrelated creditors' likely recovery if the DOCA was terminated. The primary judge was led into error in that respect. 129 In our view, the primary judge erred in concluding that conditions necessary to enliven the Court's discretion to make an order terminating the DOCA under s 445D(1)(f)(i) and s 445D(1)(f)(ii) were not satisfied.

Discretion to terminate DOCA 130 The Sino Creditors have established that the conditions to the exercise of the discretion in ss 445D(1)(a), (c) and (f) are satisfied. It now falls to this Court to determine whether the discretion to terminate the DOCA under s 445D should be exercised. In our view, it is appropriate to exercise the discretion under s 445D(a) to order that the DOCA be terminated, for the following reasons. 131 In exercising the discretion, as Campbell J observed in Bidald, citing Heery J in Deputy Commissioner of Taxation (Cth) v Pddam Pty Ltd (1996) 19 ACSR 498 at 512, it must be borne in mind that "the maxim that an underpaid creditor is entitled ex debito justiciae to a winding up order is now subject to the substantial qualification that the law provides for the possibility of a deed of company arrangement being imposed against the will of creditors holding as much as 49% of the company's debt". 132 We turn first to consider the interests of creditors. 133 The fact that a majority of creditors favoured entering into the DOCA is itself a factor in favour of not terminating it under s 445D: Pizzey Noble at 282. However, in the present circumstances, the weight to be given to the creditors' vote in favour of executing the DOCA is significantly reduced by the flawed quality of the information that was provided to creditors for the purpose of deciding how to vote. We have found that the unexposed flaws in the premises on which the headline comparator for the DOCA of 100 cents in the dollar was based were material such that it could have affected the outcome of the vote on the resolution to execute the DOCA. Further, that the effect of the headline comparator was amplified by the absence of any qualification as to the likelihood of that return being achieved and the failure to include, and expose the assumptions which would inform, the low end of the range of returns on a DOCA. The reliability of the creditors' vote in favour of the DOCA as indicative of what creditors' views would have been had they been properly informed is seriously undermined and should be afforded little weight. 134 We acknowledge that it is possible for information to be given to creditors that is false or misleading and material, or to be omitted and material, but still not of sufficient importance to justify terminating the DOCA: see Bidald at [292]. What matters is how important that information is likely to have been in arriving at a decision on how to vote: Bidald at [292], citing Pizzey Noble at 282. In the present case, the impugned information could have affected the manner in which creditors exercised their vote. This is a factor that weighs in favour of terminating the DOCA. 135 Given the dispute between the Related Party Creditors and the Sino Creditors, we do not regard there being utility in canvassing the views of all creditors, on the basis of a fulsome and correct information base, for the purpose of considering whether to exercise the discretion. 136 The information available in relation to the likely range of returns to creditors under the DOCA or in a liquidation is canvassed in detail above. The range of returns estimated in each scenario are necessarily estimates and may be impacted by future events not presently accounted for. Nevertheless, the range of estimated returns is relevant to the assessment of whether creditors would likely be better off under a DOCA or in a winding up. 137 The appellants have succeeded on ground 3. In doing so, they have demonstrated that the likely range of estimated returns to unrelated creditors in the DOCA scenario included, even if the headline comparator of 100 cents in the dollar is not disturbed, 38 cents in the dollar at the low end of the range (see paragraph [90] above). The appellants have succeeded on ground 4. In doing so, they have demonstrated that the likely range of estimated returns to unrelated creditors in the winding up scenario, taking into account the effect of the Subordination Deeds, was 100 cents in the dollar, at both ends of the range of estimated returns (see paragraph [115] above). 138 Taking these estimates into account, and appreciating that it is not possible to reach a firm conclusion as to the likely returns in either scenario, in our view, it is likely that unrelated creditors' interests as a whole are better served by winding up the company. The position of Related Party Creditors derives from the Subordination Deeds, not from the winding up per se. The Deeds are not expressed to be conditional on the DOCA being effected. As the Related Party Creditors voluntarily entered into the Subordination Deeds in the context of litigation which might have had the result that their loans would be subordinated in Gymbaroo's liquidation upon termination of the DOCA, they must be taken to have accepted the possibility of finding themselves in that position. 139 It is also relevant to compare the position that the creditors will be in if the DOCA is terminated, and the situation that they will be in if it is not brought to an end. 140 If the DOCA is terminated under s 445D of the Act, Gymbaroo will proceed to liquidation as if it was placed in voluntary liquidation under s 491, without the directors having made a declaration of solvency under s 494: s 446AA of the Act. Upon Gymbaroo being wound up, it does not necessarily follow that the only option available to the liquidators will be to cease the business of Gymbaroo and sell it as a going concern. The liquidators may appoint an administrator with a view to Gymbaroo making another DOCA: for example, under s 436B of the Act. Upon application to the Court, the liquidation may be stayed or terminated if, for example, the company proves to be solvent having bought time and substantially improved its cash flow position by reason of the effect of the Subordination Deeds: ss 446A(5) and 482 of the Act. The Court has no current information as to Gymbaroo's solvency and that issue would also likely turn on any further steps taken in the arbitration which is currently stayed. 141 We are satisfied that, on the information available to us, the unrelated creditors are likely to receive a better return in a winding up than under the DOCA. The position of the Related Party Creditors in a winding up, taking into account the positive impact of the Subordination Deeds on cash flow, may enable the company under the stewardship of a liquidator to restore itself to solvency. In any event, the Related Party Creditors voluntarily subordinated their interests for a period of three years. For these reasons, we find that the interests of creditors, viewed as a whole, favour termination of the DOCA. 142 We now turn to consider the public interest. 143 In the circumstances of this case, where solvency is uncertain and taking into account the manner in which the company came to execute the DOCA against a background of an extant arbitration, where there had been a finding in relation to liability against Gymbaroo and the damages phase of the proceedings was pending, and where the trigger for placing the company into administration was the calling up of a debt to a Related Party Creditor, a debt which was very shortly thereafter subordinated and deferred, the public interest weighs in favour of terminating the DOCA to enable the affairs of the company to be investigated by a liquidator, including in relation to the dispute as to the quantum of the debt to the Sino Creditors. 144 There has been no delay on the part of the Sino Creditors in bringing the application to terminate the DOCA. 145 Having regard to all of these matters, we are satisfied that in all of these circumstances, the appropriate course is to terminate the DOCA under s 445D(1) and will make orders accordingly. 146 The appellants foreshadowed that they reserve their right to seek to appoint a liquidator, other than the Administrators, to wind up the company. The respondents indicated that they would oppose any such application on the basis that the costs and remuneration of any new liquidators are uncertain and may be significantly higher than those of the Administrators. No such application is before this Court. Any such application, if forthcoming, should be made in the Court's original jurisdiction.

Ground 5 147 In light of the conclusion we have reached in relation to the third and fourth grounds, it is not necessary to determine the fifth ground. We note that in the hearing below, and on appeal, the parties accepted that this ground stood or fell with ground 4. Although there are some points of distinction between an application under s 75-41 of the IPS and an application under s 445D(1) of the Act, in our view, in the circumstances of this case the parties were correct in their assessment that the outcome in relation to ground 5 would be the same as in relation to ground 4. 148 Given the parties' positions regarding the overlap, in this case, between s 445D(1)(f) and s 75-41, it is not necessary to determine ground 5 of the appeal. The relief that would attend on the success of ground 5 is overtaken by the relief we will grant on grounds 3 and 4.

Ground 1 and 2 149 As stated at the outset, it is not necessary to consider the first and second grounds of appeal because the success of the third and / or the fourth ground require that the DOCA be terminated.

CONCLUSION 150 For these reasons, the appeal must be allowed on grounds 3 and 4. In the ordinary course, costs would follow the event. We will afford the parties an opportunity to address on costs. I certify that the preceding one hundred and fifty (150) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justices Farrell, Cheeseman and Feutrill.

SCHEDULE OF PARTIES VID 371 of 2022 Respondents Fourth Respondent: JANET WILLIAMS