Spiteri v Georges [2002] VSC 473

5. The applicants are Mario Michael Spiteri and Econ Industries Pty Ltd ("Econ"). Spiteri is a director of Econ. In his affidavit in support of the application sworn 21 August 2002, Spiteri said that he and Econ were creditors of Waleri.

8. The defendants to the application are the administrators, the NAB and Waleri.

(a) that each decision of Lindholm as chairman of the first meeting be set aside,

(b) that Ray Dimech, Peter Guy and Michael Louros be appointed as a committee of creditors,

(c) as to the amount for which the NAB's proof of debt ought be admitted by the administrators,

(d) that the administrators be removed from office and Richard Herbert Judson be appointed in lieu, and

(e) extending the time for convening the second meeting of creditors.

Background

17. Waleri was registered in 1997. It conducted business under the name Econo-Mix Building and Garden Supplies. Spiteri was a founding director, and since 1998 has been the sole director of Waleri. He is also the secretary and sole shareholder of Waleri.

20. Spiteri was involved in a number of companies in addition to Waleri and Econ. One such company is Ecto Pty Ltd ("Ecto"), of which he and Joseph Paul De Fazio were the directors and sole shareholders (as to 50 per cent each).

23. According to Spiteri, Ecto was formed for the purpose of buying and developing property. A property was acquired at 156 Bay Street, Port Melbourne. Ecto engaged CMR Builders (Aust) Pty Ltd ("CMR") for the development of the property. CMR duly commenced the works but Ecto lacked sufficient funds and went into liquidation on 9 August 2000, before the project had been completed.

26. In 1999 Waleri, Ecto and three other companies associated with Spiteri - Thorncrest Pty Ltd (in liquidation) ("Thorncrest"), Valecave Pty Ltd ("Valecave") and Nezest Pty Ltd ("Nezest") - had banking facilities with the NAB. From approximately 15 November 1999 the accounts, and that of Spiteri, were handled by Matthew John Patterson, a business banking manager of the NAB.

29. The NAB granted Waleri financial accommodation up to $450,000. It comprised a business cheque account with an overdraft limit of $250,000, and a bill facility with a limit of $200,000. Written terms and conditions for the overdraft facility were dated 11 January 2000.

32. The overdraft facility was secured by the Waleri debenture, a guarantee and indemnity for a basic liability of $450,000 given by Spiteri and Valecave, dated 16 February 2000, and a first registered mortgage given by Valecave over a property in Deer Park. Spiteri was the sole director and secretary of Valecave.

35. Ecto sought finance from the NAB for the building works at the 156 Bay Street property. Ultimately, in 2000, the NAB refused the application. That led to Ecto being placed in liquidation. Nevertheless, earlier in 2000, while the application was pending, Patterson permitted some advances to or for the benefit of Ecto. Some of those advances were debited to Ecto's account. Other advances were debited to Waleri's account.[1] The present dispute as to the amount owing by Waleri to the NAB concerns those latter payments. The applicants contend that the payments, and associated interest, should have been debited to Ecto's account, and that if they are so treated Waleri is not indebted to the NAB. The point is significant because the NAB had no security for the Ecto debt. If that is where the NAB's debt lies, the NAB will stand as an unsecured creditor in Ecto's liquidation.

38. Spiteri said in evidence that in March and April 2000 he raised queries with Patterson concerning various transactions that had occurred in January and February 2000. As he did not receive a proper response, in November 2001 he appointed Ray Dimech as a consultant to determine Waleri's indebtedness to the NAB. He is the Ray Dimech referred to in [4](b).

41. Then, in January 2002, Peter Guy of the firm Kennedy Guy, solicitors, commenced acting for Spiteri, Waleri, Ecto and Valecave. He is the Peter Guy referred to in [4](b). He contacted the NAB's solicitors, Russell Kennedy, and by letter dated 22 January 2002, requested details of the facilities provided to those clients, and the security held by the NAB, and for that purpose enclosed an authority signed by Spiteri.

44. In response, Russell Kennedy sent a letter dated 18 February 2002, advising that the debit balances of the accounts were:

(a) Waleri account 49-081171 $245,361.13

(b) Waleri account 48-150-4276 $400,000.00

(c) Ecto $846,271.83

Item (a) was Waleri's bill facility. But item (b) was a personal account of Spiteri and, as such, it should not have been included. What should have been included, but was omitted in error, was Waleri's overdraft account 04-763-3526 with a debit balance of $672,833.75 at 31 January 2002.

50. A without prejudice meeting was held on 7 March 2002 to discuss the accounts, attended by Spiteri, Dimech, Patterson and Brian Linke, a bank manager employed by the NAB.

53. On 22 March 2002, Guy wrote to Russell Kennedy setting out his clients' instructions. Waleri disputed the amount owing on the overdraft account on the basis:

(a) it had not authorised transfers of $57,876.34 and $34,626.34 to Efron & Associates on 19 January and 8 February 2000 respectively,

(b) it had not authorised the transfer of $200,000 on 6 March 2000, and

(c) interest needed to be adjusted accordingly.

He requested copy statements of the bill facility in order that the amount owing could be checked. The balance of the letter sought information concerning the accounts and liability of Valecave, Spiteri and Nezest. The letter concluded with the statement that Waleri would pay any money owing once the amount was verified.

59. In early June 2002, Russell Kennedy discovered that a company called Econo-Mix Pty Ltd had been registered on 28 March 2002, the sole director, secretary and shareholder being Spiteri. The registered office was at 286 Maribyrnong Road, Moonee Ponds. That is also the address of the registered office of Waleri. It is in fact the office of Knott, Jones and Associates ("Knott Jones"). They act as accountants for Waleri and Spiteri. Michael Louros, who is referred to in [4](b), is a partner of the firm.

62. Russell Kennedy advised Dale Gregory Fergusson of the registration of Econo-Mix Pty Ltd. Fergusson is a principal manager in the credit restructuring department of the NAB. Since 8 April 2002 he had been the NAB's manager responsible for the accounts of Spiteri, Waleri, Ecto, Thorncrest, Valecave and Nezest. Fergusson was aware that Econo-Mix had been the trading name or part of the trading name of Waleri. He was concerned about the incorporation of Econo-Mix Pty Ltd so soon after the meeting on 7 March. He was concerned that assets of Waleri might be transferred to Econo-Mix Pty Ltd for either no, or an inadequate, consideration. Econo-Mix Pty Ltd was not a customer of the NAB and the NAB held no security over any asset of it.

65. On 12 June 2002 the administrator Georges met with Fergusson, at Fergusson's request, to discuss the NAB's intentions to appoint an external administrator to Waleri and the various potential modes of appointment. Georges was a prospective appointee and would be contacted further if and when the NAB decided to appoint an administrator.

68. On 16 July 2002 the NAB served two notices on Waleri. One notice demanded repayment by 5:00 pm on 18 July 2002 of $705,945.37, being the amount then owing under the overdraft account. By the other notice, the NAB terminated the bill facility due to the occurrence of an event of default as outlined in cl 17(a) of the bill facility, and demanded the immediate repayment of $266,979.58, being the amount then owing.[2] The total of the amounts demanded was $972,924.95.

71. On 17 July Russell Kennedy wrote to Kennedy Guy in response to their letter dated 22 March 2002.

74. By a further demand on 19 July 2002, the NAB demanded payment of $486,675.00 from Spiteri and Valecave under the guarantee. That was followed on 22 July 2002 by a demand under the Valecave mortgage. On 2 August 2002 Valecave paid the amount demanded. The difference between that amount and the total of the amounts demanded on 16 July is $486,249.95.

77. On 23 July 2002, Guy wrote to Russell Kennedy suggesting that the limit of Waleri's facility was $450,000 and requesting responses to queries raised in his letter dated 22 March 2002. It would appear that Guy had not received Russell Kennedy's letter dated 17 July 2002.

81. On or about 31 July 2002 the NAB asked the administrators for their consent to be appointed as the administrators of Waleri under Part 5.3A of the Corporations Act, and on 2 August the appointment was made. The instrument of appointment stated that Waleri had defaulted in making payment of the principal amount, interest and other moneys secured by the debenture.

84. In an affidavit sworn on 2 September 2002, Lindholm explained the action taken by the administrators. He was not cross-examined. Subsequent to the hearing, a further affidavit by Lindholm, sworn 16 October 2002, was filed.[3] The affidavit was filed at my suggestion to remedy omissions in the documents exhibited to his earlier affidavit. The other parties did not seek to cross-examine him on that affidavit.

87. On 2 August 2002, once the appointment was made, Lindholm took the following steps:

(a) He obtained a company search of Waleri which disclosed the address of the registered office as 286 Maribyrnong Road, Moonee Ponds, and its principal place of business as 70 East Esplanade, St Albans.

(b) Accompanied by an employee from his office, Adam Vincent, Lindholm attended at the principal place of business where he was advised that Spiteri was at the Deer Park depot at 40-45 Westwood Drive, Deer Park.

(c) He then attended at 40-45 Westwood Drive. According to his report to creditors, he was greeted at those premises by Ray Dimech who advised that Spiteri was on leave and was not contactable. Dimech said that Waleri did not operate from the premises. Lindholm observed a concrete plant and numerous concrete mixers, utilities and cranes, most of which bore the name "Economix". It appeared to be the main trading premises of the Spiteri Group. He and Vincent noted the registration numbers of the vehicles. A subsequent search with Vic Roads disclosed that at least six of the vehicles were registered in the name of Waleri.

(d) Lindholm and Vincent then attended at the registered office, which was, by that time, closed.

(e) Lindholm wrote to Spiteri. He sent the letter, in identical terms and with identical attachments, to three different addresses. One letter was addressed to Spiteri at 70 East Esplanade, St Albans, and sent by registered mail. Another letter, addressed to Spiteri at the registered office address, was hand delivered. The third letter was addressed to Spiteri c/- Kennedy Guy at their address, and was sent by courier. The letter advised Spiteri of the appointment of the administrators; drew attention to, and advised Spiteri of, the effect of s 437C and s 437D; and also advised Spiteri that pursuant to s 438B(2) he was required to submit, within seven days, a report about the company's business, property, affairs and financial circumstances (Form 507). Enclosed with the letter was:

(i) A notice of meeting of creditors on 8 August 2002. In addition, the letter expressly required Spiteri to attend the meeting pursuant to s 438B(3).

(ii) A Form 509A notice under s 438C(3) requiring Spiteri to deliver to the administrator, within five business days, the books of the company specified in the notice. The notice informed Spiteri that under s 438C(5) he must comply with the notice except so far as he was entitled, as against the company and the administrator, to retain possession of the books. The schedule to the notice described a wide range of documents including all books and records of an accounting, asset recording and statutory nature.

(iii) A form of report as to affairs and instructions for completion, statements verifying the report, and a questionnaire, to be completed and returned within seven days. The questionnaire comprised some 74 questions with provision for answers. It sought information of an historical and current nature. Among other things, there were questions as to where the books and records were kept, who maintained them, and whether they were accurate, as to the company's business including whether the company had ceased business (in which case details of the sale and a copy of the sale of business agreement were requested), and whether deductions of tax and other charges (of various specified types) were regularly remitted to the relevant authorities and, if not, why not.

(iv) A document entitled notification to corporate officer of appointment of administrators and of officer's responsibilities. This helpful document referred to, and briefly explained, a number of the provisions of Part 5.3A so as to convey the effect of administration on the control of the company and the obligations of an officer. It was requested that the document be signed and returned.

93. On 5 August 2002, Lindholm wrote to Mr G Knott of Knott Jones. He advised Knott of the appointment of the administrators and indicated that he understood that Knott acted on behalf of Waleri. Lindholm asked Knott to forward urgently any books and records, financial statements and working papers he held in relation to Waleri, and to which Lindholm was entitled under s 438C. He further requested advice in writing of who was responsible for maintaining the books and records of Waleri, particulars of Knott's engagement, and confirmation of any amount owed by Waleri.

96. On 6 August Lindholm sent a letter by facsimile to Spiteri, care of Knott, in which he stated that from his investigations to date, it would appear that the business and assets of Waleri were transferred to Econo-Mix Pty Ltd for no value. The letter stated that:

"In the event that the Company proceeds into liquidation, it is my view that this transaction is an uncommercial and insolvent transaction pursuant to Sections 588FB and 588FC of the Corporations Act respectively and would be voidable pursuant to the following sections: * Section 588FE(3) "Insolvent and uncommercial transaction"; * Section 588FE(4) "Insolvent transaction to which related entity a party"; * Section 588FE(5) "Insolvent transaction for purpose of defeating creditors". The effect of the transfer of business and assets of the Company to Econo-Mix Pty Ltd was to: * Deprive the Company of its realisable assets and transfer certain liabilities; * Cause the Company to be unable to service the remaining liabilities as and when they fell due; * Benefit the director of the Company (who is a director of both the vendor and purchaser company) in that he retains control of the realisable assets of the Company without the burden of one or more of the Company's creditors. In these circumstances, a Liquidator would have three choices, as follows: 1. Initiate proceedings pursuant to Section 588FF of the Corporations Act to void the above transaction; and/or 2. Seek damages against the purchaser and the directors of the Company; or 3. Resolve the matter commercially. In addition to the above, I consider you have breached the following Sections of the Corporations Act in relation to directors' duties: * Section 180 'Care and diligence' * Section 181 'Good faith' * Section 182 'No personal gain by improper use of position' * Section 183 'No improper use of inside information' I am obliged to report the above breaches of the Corporations Act to the Australian Securities and Investments Commission. I point out that the above breaches are subject to civil penalty provisions."

100. On 7 August 2002 Lindholm received a letter of that date from Kennedy Guy who, the letter stated, had not yet been able to obtain instructions from Spiteri, as he was on leave. In the meantime the solicitors disputed that any amount was owed to the NAB. The letter stated that there were a number of unauthorised transactions and that interest had been allocated to accounts without authority. It was suggested that the NAB had appointed administrators to frustrate Waleri's attempts to dispute the debt. The letter referred to other creditors having sought to appoint another person as the company's administrator. The letter stated that the proposed appointee had revoked his consent to appointment. The letter concluded by informing the administrators that Spiteri challenged the NAB's claim that it was owed money, and that he would seek an investigation by the Australian Securities and Investments Commission ("ASIC") of the reasons why the person approached had refused to accept an appointment as the company's administrator.

104. In addition to Lindholm and his staff, the creditors' meeting was attended by Fergusson for the NAB, Peter Guy of Kennedy Guy, Michael Louros of Knott Jones and Ray Dimech for Spiteri, Econ and Smack Enterprises Pty Ltd ("Smack"). Spiteri did not attend. Lindholm was provided with informal proofs of debt by:

(a) The NAB for a secured debt of $486,249.95 for advances and to which were attached the two demands dated 16 July 2002.

(b) Kennedy Guy for an unsecured debt of $1,282.60 for services provided supported by an attached invoice for professional costs for the period 1 April 2002 to 28 June 2002.

(c) Knott Jones for an unsecured debt of $1,375 supported by an invoice for accounting fees.

(d) Spiteri for an unsecured debt of $400,000 for loans to Waleri; there was no supporting information.

(e) Econ for an unsecured debt of $173,382.00 for "monies collected on behalf of concrete pump", supported by two invoices.

(f) Smack for an unsecured debt of $205,590 for consultancy fees supported by invoices.

110. I accept the meeting the minutes prepared by Lindholm's staff and signed by him as an accurate account of the meeting. In particular, wherever there is a conflict or inconsistency between those minutes and the minutes prepared by Guy, I accept the former as accurately and faithfully representing what occurred at the meeting.

113. At the outset of the meeting, Guy introduced himself as acting for Spiteri who, Guy said, believed that the NAB was not a creditor of Waleri. Guy proposed that the NAB not be allowed to vote. Lindholm stated that, based on the proof of debt and supporting documentation, he would allow the NAB to vote for the amount claimed.

116. Lindholm then reviewed the informal proofs of debt submitted by those present. He admitted them all with the exception of Spiteri's claim, for which there was no supporting documentation, and as to which, on being asked, Guy said that he had no supporting documentation. In those circumstances Lindholm stated that he could not admit the proof for the full amount and that he would admit it for $1.00 for voting purposes.

119. The only decision made by Lindholm which is now challenged is the decision to admit the proof of the NAB to vote in the amount claimed.

122. The meeting proceeded. In the course of the meeting Guy stated that Spiteri would prefer that another person be appointed as administrator of Waleri. He did not wish to deal with the current administrators as they had a preconceived plan to place the company into liquidation. Lindholm said he had no such preconceived plan. Guy stated that Ferrier Hodgson (the firm of which the administrators are partners) were not acting independently, that he would not deal with Ferrier Hodgson, and that the matter could be resolved within a week if another administrator was appointed. Dimech advised that he would approach ASIC as he believed that the NAB was dictating the appointment. Guy queried the NAB's motive in appointing administrators, reiterated the contention that the NAB was not a creditor of Waleri, and said that he was prepared to go to court to challenge the appointment. An independent administrator should be appointed or the meeting adjourned, Guy stated. Among further comments recorded in the minutes, Fergusson said that the NAB would not consider an alternative administrator, Guy said that the matter could be resolved if the NAB could demonstrate that it is a creditor, and Lindholm said that he did not have a predetermined view of the outcome of the administration. Lindholm further noted his visits to premises on 2 August 2002 and confirmed his understanding that Waleri was no longer trading. Dimech is recorded as asking Lindholm if the company was trading from the principal place of business in response to which Lindholm asked if he was inferring that it was trading. At that point Guy stated that his client had no comment, and he reiterated that he would not co-operate with the administrators and would discuss the matter with the NAB if another administrator was appointed.

125. I interpolate at this point that in addition to Spiteri not attending the meeting, Spiteri had not complied with any of the requests in Lindholm's letter dated 2 August 2002. Nor had Knott responded to the requirements in Lindholm's letter dated 5 August 2002.

128. The meeting then proceeded to deal with two motions. The first motion, moved by Guy and seconded by Dimech, was that a committee of creditors be appointed comprising representatives of Kennedy Guy, Econ, Smack, Knott Jones and Spiteri. The NAB was not included in the proposed committee, and opposed the motion. Lindholm called for a poll. The result was that five votes to a value of $381,630.60 were cast in favour of the motion with the single vote of the NAB to the value of $486,249.95 cast against. Lindholm declared that the motion was not carried. Lindholm did not case a vote.

131. The second motion, moved by Guy and seconded by Louros, was that Richard Herbert Judson be appointed as the administrator of Waleri. The motion was lost on a vote, and on a poll, on the same voting as the first motion. As a result, Lindholm announced that the NAB's appointment stood and that he and Georges remained the administrators of Waleri. Again, Lindholm did not cast a vote. The meeting then concluded.

135. Several meetings were held, as late as 21 August 2002, between Fergusson and Dimech acting on behalf of Spiteri and Waleri, in an attempt to resolve the issue of Waleri's debt to the NAB. Fergusson provided information, but there was no resolution. Fergusson said in his evidence that the negotiations proved futile, that he believed that there was no prospect of an agreement, and that the NAB did not intend to enter into further "negotiations". Fergusson was not cross-examined.

138. On 12 August 2002, Lindholm received a letter from Knott Jones advising that they acted for Spiteri and referring to Lindholm's letter dated 2 August 2002 addressed to Spiteri care of Knott Jones. The letter stated that Spiteri's solicitors had requested Knott Jones to assist with completion of the report as to affairs. They would need to prepare up-to-date accounts for Waleri to complete the report and questionnaire. For that purpose, the letter requested that certain information be obtained from the NAB. I note that the letter did not refer to or answer Lindholm's letter dated 5 August 2002.

141. On or about 14 August 2002 Lindholm received a letter from Kennedy Guy which contended that once certain adjustments were made the debt owing to the NAB would be less than $200,000. When that was confirmed, Spiteri proposed to make sufficient money available to Waleri to pay the NAB in full and have Waleri taken out of administration by a deed of company arrangement. If the NAB was not prepared to establish the correct amount owing, Spiteri would have no alternative but to refer the matter to the Supreme Court as he would not allow the second meeting of creditors to take place until the correct amount is established and he has the opportunity of proposing a deed of company arrangement.

144. On or about 22 August 2002 Lindholm convened the second meeting of creditors, as required by s 439A, to be held on 29 August 2002. He sent a circular letter to creditors from the administrators, dated 21 August, which attached a notice of meeting, the administrators' report to creditors, an informal claim form for voting purposes (noting in the letter that the informal proofs of debt submitted for the purposes of the first meeting of creditors will be valid for the second meeting), a proxy form, guidance notes and a schedule of remuneration of administrators.

147. In the report to creditors, Lindholm set out a brief chronology of actions, commencing with his visits to several business premises on 2 August 2002, and including the letter from Kennedy Guy dated 7 August disputing the amount owed to the NAB by Waleri, the resolutions of the first meeting of creditors, and Kennedy Guy's letter dated 14 August 2002 contending that the NAB was owed less than $200,000 and that Waleri proposed to pay the NAB in full under a deed of company arrangement. Lindholm stated that he had not received a report as to affairs from Spiteri as required by the Corporations Act, and that he had not gained access to the books and records of Waleri.

150. Then, on the matter of voidable transactions, Lindholm stated that from his investigations "to date" it "appeared" that the business and assets of Waleri "may" have been transferred to Econo-Mix Pty Ltd ("Econo-Mix"). He set out the matters giving rise to his concerns in that respect; namely, the date of registration of Econo-Mix, Spiteri was the sole director of Econo-Mix, Waleri and Econo-Mix shared the same registered office, and Econo-Mix was Waleri's previous trading name. He said that if Waleri went into liquidation, any transfer or sale of its assets to another entity for no consideration would be an uncommercial and insolvent transaction pursuant to ss 588FB and 588FC of the Corporations Act and, on that basis, voidable. As he had not been able to gain access to the books and records of Waleri he had not been able to ascertain whether there were any additional transactions that appeared to be voidable in respect of which a liquidator might be able to make a recovery. He had also been unable to determine whether the books and records had been properly maintained in accordance with s 286, and stated that he would be pleased to receive such information from the creditors. He then listed fifteen vehicles registered in Waleri's name (the information being obtained from a search with Vic Roads) and noted that six were sighted at the Deer Park premises on 2 August 2002.

153. The next section of the report concerned creditors. He noted those present at the first meeting, and that the Australian Taxation Office ("ATO") had subsequently confirmed that it was a creditor owed $21,149.39. He was not aware of any other creditors.

156. Lindholm concluded the report with a summary of the options available to creditors. In the discussion, he noted that Waleri was no longer trading. He concluded that, due to the lack of information, he was not in a position to make an informed recommendation to creditors. He recommended that it was in the creditors' best interests to adjourn the meeting for a period to be agreed. That would provide an opportunity for the NAB and the company to resolve their dispute with the possibility of an acceptable deed of company arrangement being proposed.

160. In the afternoon on 21 August 2002, Kennedy Guy filed the originating process for the relief mentioned earlier. The application was returnable before me on 30 August. However, before then, on 27 August, Kennedy Guy filed an interlocutory process, returnable on 28 August, for orders seeking, in substance, that the holding of the second meeting be deferred until determination of the originating process. I made an interim order to that effect and fixed the proceeding for hearing on 3 September 2002.

164. On 28 August 2002 Lindholm received a letter of that date from Knott Jones. The letter referred to a facsimile from Lindholm, and advised him that Knott Jones was awaiting certain information from the NAB. When Knott Jones received the information it would be in a position to provide the report as to affairs. The letter did not refer to Lindholm's letter dated 5 August 2002.

167. On 30 August 2002 Lindholm received a report as to affairs relating to Waleri, dated that day, from Spiteri. The report disclosed that Waleri's sole asset was cash at bank of $37,464.00, and that its liabilities were unsecured creditors of $1,161,953.60. As Lindholm observed in his first affidavit, the report shows that Waleri is balance-sheet insolvent. Further, there is no hint in the report that Waleri is trading: there is no income, debtors are nil and there is no cash at hand, stock, or work in progress. What is also to be noticed is that plant and equipment and other assets are stated to be "Nil". There is no hint of an explanation as to how a nil asset position relates to the registration in Waleri's name of fifteen vehicles. Where are the assets? What is the position with the business? What has happened to the business? There is no explanation.

170. The report lists the unsecured creditors which comprise the claimed amount of $1,161,953.60. The NAB is not included in the list. Nor is it identified as a secured creditor. It is not mentioned. There are seven unsecured creditors, including the ATO. As to the ATO, the amount claimed and the amount admitted are stated (with no explanation) to be "Unknown". The other six creditors are:

In each case the report states the amount is admitted as owing. It is to be noted that with the exception of the amounts claimed for Knott Jones and Kennedy Guy, the list differs from the claims provided to Lindholm at the first meeting. Spiteri's debt has reduced from $400,000.00 to $65,000, Econ's debt has fallen from $173,382.00 to $157,621.00, and Smack is not included. But Valecave and Pine Oak have been brought in; each is a Spiteri or Spiteri-related company.

180. In his affidavit sworn on 2 September 2002, Lindholm stated that he had no direct knowledge of the matters that are the subject of the dispute between Spiteri and the NAB. Further, he had not yet been provided with Waleri's books and records and, without them, he was not in a position to assist the Court with information about what they disclosed concerning the indebtedness to the NAB, or, for that matter, any of the other creditors of Waleri. He noted, correctly, that in the affidavits sworn by Spiteri and Guy no explanation had been offered for the failure to deliver up the books and records in accordance with his request. I interpolate that it remained the case during the hearing before me that the books and records were not delivered up. In addition, it is clear enough, and I find, that there has been a failure to comply with the other requests made in Lindholm's letters to Spiteri dated 2 August 2002 and the letter to Knott Jones dated 5 August 2002. I find that this was a deliberate tactic. The conclusion is irresistible that the tactic was employed because it was considered to be in Waleri's interest, in its struggle against the NAB and the attempt to remove the administrators, that the administrators not have access to Waleri's books and records, and information from Spiteri as to relevant matters. The books and records and such advice as the questionnaire required would, among other things, contain information bearing upon the matters of the NAB debt, voidable transactions, and the identity of creditors and amounts owed to creditors.

183. As Lindholm understandably stated, until he has the books and records he is forced to rely on the information provided to him by the creditors for the purpose of valuing their claims for voting in the administration. Based on those documents and subject to any determination by the Court, he is satisfied that the NAB is entitled to vote in the administration for a claim with a value of $486,249.95. He is of the same view in relation to the creditors from whom he received informal proofs of debt at the first meeting, subject to allowing Spiteri's claim at $1.00 for voting purposes.

186. Lindholm remains concerned about the possibility of a transfer of the business and assets of Waleri for no consideration. His view is that in the absence of the books and records, and an explanation from Spiteri in response to his concerns, as well as a proposal for a deed of company arrangement, and the ability to compare any proposed deed of company arrangement with a liquidation (due to the absence of the books and records), the only course open to him, consistent with his duty to all creditors, is to recommend that the creditors resolve that Waleri be wound up, so that these matters can be investigated and any necessary recovery action taken.

190. The applicants relied on two affidavits by Spiteri, and an affidavit by each of Guy, Dimech and Graeme Efron, a solicitor and the principal of Efron and Associates. For the NAB there were two affidavits by Fergusson, two by their solicitor Damian Thomas Neylon of Russell Kennedy, and an affidavit by Patterson. As mentioned, there are two affidavits by Lindholm. Of the deponents, only Spiteri, Guy and Patterson were cross-examined. The evidence covered the breadth of matters referred to already in this judgment including the indebtedness, if any, of Waleri to the NAB. The cross-examination was concerned with the issue of debt.

193. As to whether there was a debt, Spiteri's evidence was that, without authority to do so, the NAB debited to Waleri's overdraft account the following:

(a) the amounts of $57,876.34 and $34,626.34, which it transferred to Efron and Associates on 19 January 2000 and 8 February 2000 respectively, and (b) the amount of $200,000, advanced on 6 March 2000 for the payment of a debt owing by Ecto for the supply of concrete for the 156 Bay Street project.

198. Spiteri said that "none of that money was paid to or for the benefit or order of Waleri". Neither Waleri, nor he, nor any of his companies, owed Efron and Associates "any sum of money at that time". He was "not aware as to whether Ecto owed Efron and Associates any sum of money at that time". And neither he nor Waleri had authorised Efron to request that any transfer of money be debited to the Waleri account. Further, neither Waleri nor he had instructed the NAB to make any of the disbursements from the Waleri overdraft account and the above disbursements "were done completely without the authority of Waleri or myself". He said that the NAB made the debits for the purpose of obtaining the benefit of Waleri's security, because the Ecto account was unsecured. In truth, however, all the amounts were for the benefit of Ecto and should have been charged to an account of Ecto.

201. In his affidavit sworn 30 August 2002, Dimech stated that he was a consultant to Spiteri and companies associated with him. He had undertaken a reconciliation of Waleri's overdraft account excluding the three debits disputed by Spiteri. He had assisted with the preparation of the report as to affairs. The report was prepared upon receipt of a letter from Ferrier Hodgson dated 27 August 2002, and "will be" lodged immediately. In fact the report was dated and provided to Lindholm that day.

204. Spiteri further said in his evidence that draft financial accounts for Waleri had been prepared for the year ended 30 June 2002. These accounts show that at that date the NAB was owed $431,148.60. Spiteri said that this figure had been determined "based on calculations" prepared by Dimech. He said that the other creditors of Waleri as at 30 June 2002 were Valecave, Econ, himself and Pine Oak (and he gave as the amount of their debts the respective amounts stated in the report as to affairs). He did not refer to Kennedy Guy or Knott Jones being creditors. Finally, after allowing for Valecave's payment of $486,675 on 2 August 2002, the Waleri overdraft account should be in credit to approximately $37,441. He produced an asset and liability statement of Waleri as at 15 August 2002 which showed this position and an overall net asset balance of $37,464. The liabilities do not include a liability to Kennedy Guy or Knott Jones. It is important to note about this evidence that neither the draft financial accounts for Waleri for the year ended 30 June 2002, nor Dimech's "calculations", nor any documentation as to debts owed by Waleri, were produced in evidence. Further, Spiteri did not state who had prepared the draft financial accounts, and did not set out how the amount of $431,148.60 was "determined based on the calculations prepared by Dimech". Finally, the asset and liability statement is a single sheet document, bearing no verification or certification of accuracy, and does not state who prepared it. Of course, it may be noted, this lack of evidence, and the assertive nature of the Spiteri evidence without supporting documentation, may be regarded as consistent with the failure to produce the books and records of Waleri, and provide the other requested information, to the administrators.

207. In his affidavit Efron referred to a facsimile he sent to Patterson dated 18 January 2000. The facsimile comprised a cover sheet "Re: Ecto Pty Ltd" with the message "Please advise when the cheques will be available for collection". On an accompanying sheet the following was set out:

The total of these amounts was $57,876.34. Efron said that he did not request Patterson to debit the cheques to Waleri's account. They were requested for Ecto who, according to advice from Spiteri and De Fazio, had an agreement with the NAB for the lending of money to Ecto. Efron said that on or about 18 January 2000 Patterson confirmed by telephone that the NAB had agreed to advance monies to Ecto.

212. Patterson's account was to the contrary. The disbursements to Efron and Associates were made at Spiteri's request, to cover payments of interest due to mortgagees of the 156 Bay Street property. It was also with Spiteri's agreement that the advances were debited to Waleri's account. Similarly, the third payment of $200,000 was made, at Spiteri's request and with his agreement, to the debit of Waleri's accounts. While Patterson had previously approved advances of $350,000 on 31 January 2000, and $247,704.37 on 22 February 2000, for Ecto to pay CMR for building works, and to the debit of an account for Ecto, the advance of $200,000 was debited to the Waleri account as, in requesting the funding, Spiteri had stated that Waleri had exhausted its funds made available to pay to Ecto for concrete and so on and, accordingly, Waleri required further funds. In that situation, and on the basis of an assurance (given earlier in January) that Spiteri had obtained for Ecto an offer of finance from Suncorp Metway, which finance was shortly to be established, and from which the NAB could be reimbursed, Patterson agreed to advance the further funds.

216. Counsel's submissions may be summarised as follows.

(a) It should be found that on 2 August 2002, following Valecave's payment of $486,675.00, Waleri owed the NAB nothing. Indeed Waleri's account was then in credit to $37,161.18. In contending for this conclusion counsel submitted that:

(i) I should prefer and accept the evidence of Spiteri that he did not authorise the debiting of the three impugned payments to Waleri's account;

(ii) I should accept as correct Dimech's reconciliation of the Waleri overdraft account which showed that the debit balance at 2 August 2002 was $182,534.24;

(iii) the amount owing by Waleri under the bill facility on 2 August 2002 was $266,979.58. (That was the amount calculated by the NAB and claimed in the relevant notice dated 16 July 2002; assuming that was the correct amount on that date interest would have accrued to 2 August 2002.)

(b) Accordingly, the NAB had not been, and was not now, entitled to appoint administrators to Waleri.

(c) At the least, there is a genuine dispute as to whether the NAB was a creditor and entitled to appoint administrators. For that reason, the Court should terminate the administration.

(d) If Lindholm had acted properly at the meeting, he would have made a just estimate of the NAB's debt, and that would have been in a nil amount. Alternatively, he would not have permitted the NAB to vote at all.

(e) The administrators should be removed and Judson appointed in lieu, as the administrators had not taken an impartial and objective approach to their duties. Their failure was clear in Lindholm's letter dated 6 August 2002 (see at [28]), Lindholm's conduct of the first meeting, and Lindholm's affidavit.

(f) Whether there had been a transfer of Waleri's assets for less than full value was not an issue which was able to be determined in this proceeding.

225. Counsel for the administrators submitted that on the evidence the administrators had acted independently and impartially. There was no reasonable basis for a contrary conclusion or a conclusion that their removal would conduce to the better conduct of the administration. No orders should be made. The administration should be left to take its course.

228. Counsel for the NAB supported the administrators' submission. It was further submitted that I should find that the amount claimed by the NAB in its informal proof of debt truly was owed by Waleri to the NAB. In other words, I should make a finding on the matter of debt and, in doing so, accept the evidence of the bank's witnesses in preference to the evidence relied on by the plaintiffs.

232. At [4] I set out the relief claimed in the originating process. It is convenient to refer to some aspects of it.

235. The first order sought is that each of the decisions of Lindholm, as chairman of the meeting, be set aside. The only matters on which Lindholm made a decision were the amount at which, if at all, to admit the informal proofs of debt for voting purposes. In this respect, the only decision challenged by counsel for the plaintiffs was Lindholm's decision to admit the NAB to vote in the full amount of its proof. Counsel for the plaintiffs and the NAB proceeded on the basis that Lindholm's decisions in respect of the other proofs had been open and proper.

238. The second order sought is that a committee of creditors be appointed consisting of Dimech, Guy and Louros. As it turned out, counsel for the plaintiffs did not press this part of the application. Indeed, as I understood it, far less than being sought, it was not mentioned. It was ignored by the other counsel. Quite clearly, it was abandoned. It is unnecessary to say anything further about it.

242. Soon after the hearing commenced, counsel for the plaintiffs raised the contention in para (c) of his submissions, referred to at [62], as a preliminary submission. He contended that the administration procedure was inappropriate, as it was clear on the affidavits that the debt was genuinely disputed. The appropriate way for the NAB to seek recovery of a disputed debt was not to have appointed administrators but to have sued in the usual way with the advantage to the parties of the procedural processes available in an action at law. Counsel's submission relied on the principle that an application to wind up a company may be refused, or restrained from being brought, where it is based on a disputed debt. The principle, and the associated discretion of the court, was referred to in Aloridge Pty Ltd v Christianos[4] which was the only case counsel relied on in support of the preliminary submission.

245. In Aloridge the defendant, Christianos, had obtained an order for the appointment of a provisional liquidator to Aloridge. Subsequently, differences arose between the provisional liquidator and Christianos. Litigation was commenced by Aloridge (by the provisional liquidator) against Christianos, which included a challenge to the validity of a charge granted by Aloridge to Christianos. While the litigation was pending Christianos, acting under the charge, appointed the second defendant as the administrator of Aloridge. The effect of the appointment, under s 437A of the Corporations Law, was to place the administrator in control of Aloridge, and that included the conduct of the legal proceeding (s 442A), to the exclusion of other officers of the company (s 437C). On the application of the provisional liquidator under s 447A, Burchett J decided that the administration should be terminated.

248. Burchett J inferred that the appointment of an administrator had been made in order to wrest control of the affairs of Aloridge from the provisional liquidator in the hope that the administrator might prove more compliant. The appointment was not made for the purposes for which the Corporations Law provided for such an appointment, as to which see s 435A. It was not desirable that the administration of the affairs of the company be removed from the duly appointed provisional liquidator in this way and no reason had been stated why it was desirable. Christianos did not give evidence and no evidence was advanced to challenge the genuineness of the dispute concerning the charge. Further, only the litigious interest of Christianos was served by the appointment. This is a sufficient reference to the findings.

251. In applying s 447A, Burchett J referred to and considered applicable the discretion in winding up cases described by the Privy Council in Brinds Ltd v Offshore Oil NL (No 3) in this way:[5]

"It is a matter for the discretion of the judge whether a winding up order should be made on a disputed debt, and it is also a matter of discretion whether he decides the substantive question of debt or no debt."

Burchett J concluded that, in the circumstances, the discretion under s 447A should be exercised in favour of terminating the administration. That left the parties to pursue their claims in the pending litigation, which was the appropriate vehicle for the determination of the dispute.

256. I informed counsel that I would not accede to the application. I can shortly state my reasons. First, Aloridge was a clear case of an inappropriate use of the power to appoint an administrator. The present case is not. I am not satisfied that the appointment made by the NAB was based on improper motives. Secondly, the registration of the new company gave rise to concern in the circumstances, and aided understanding of why the appointment had been made. Thirdly, counsel submitted that the dispute was genuine from the plaintiff's (and Waleri's) point of view. I was not satisfied that that was so, especially as the administrators had not seen the books and records of the company, or been provided with the other requested information, and because the submission was a preliminary one designed to forestall the hearing, before I had heard cross-examination and the submissions of counsel. Fourthly, while the events preceding the NAB's appointment might have been described as an "orderly process", as counsel for the plaintiff put it, there was no pending litigation over the debt. Overall, the entire matrix of facts distinguished this case from Aloridge. In my assessment, the case should proceed to be heard and determined on its merits.

260. Excluding the preliminary submission, three aspects remain. They concern, first, the decision to allow the NAB to vote in the full amount of its claimed debt. Secondly, whether the administrators should be removed from their office and another person appointed in their stead. Thirdly, whether Waleri is indebted to the NAB in any and what amount. It is convenient to note the approach adopted by counsel for the plaintiffs in making his submission.

263. Counsel for the plaintiffs treated the application as an appeal against Lindholm's decision to allow the NAB to vote in the amount of its claimed debt. He submitted that the question in this respect was not whether Lindholm had acted reasonably. He should have dealt with the proof of debt in the way indicated in Vincent, White and Associates Pty Ltd v Vouris.[6] The 7 August 2002 letter from Kennedy Guy[7] was a specific challenge to the amount claimed, and the assertion in that letter was repeated at the meeting. Then, the way in which Lindholm dealt with the NAB's proof at the first meeting was contrasted with his report for the second meeting, in which he recommended that the meeting be adjourned because there was a dispute with the NAB.[8] Why, counsel asked, if the dispute was sufficient reason to recommend that the meeting be adjourned, was it not sufficient at the first meeting to require some explanation of, or justification for, the transactions from the NAB? It was submitted that Lindholm had not applied to the NAB's claim the same test that he had applied to Spiteri's claim, which he admitted to vote at $1.00 because it lacked supporting verification. I note, however, counsel's statement that there was as much information to support the NAB's claim as there was to support the other debts (excluding Spiteri's), but, counsel added, the others were not challenged. At the least, there was a doubt as to the NAB's debt.

266. From this point counsel moved to an attack upon the administrators. Counsel said that Lindholm had approached his work with a view to ascertaining whether the NAB's position, and not that of creditors generally, could be secured. This was said to be indicated by an observation in Lindholm's file note of events on 2 August 2002, that "[t]here appeared to be no angst towards the bank". That was followed by Lindholm's letter dated 6 August 2002,[9] in which he expressed a view about a sale of the business and assets for no value even though he had not seen the books and records of the company, received a report as to affairs, or spoken to Spiteri. That revealed a prejudice against the Spiteri interest. Then, Lindholm ignored Guy's letter dated 7 August 2002. In these circumstances, it was apparent that, if the administration were to proceed, the removal of the administrators and their replacement with a new impartial administrator would conduce to the better conduct of the administration, to use the language of Hayne J in Network Exchange Pty Ltd v MIG International Communications Pty Ltd.[10]

269. Counsel then addressed what he described as "the central issue" in the case. That was the dispute as to whether or not the three impugned payments were authorised. He made submissions based on the evidence on the issue. The submissions were of the type counsel would make in a contested debt recovery action. He submitted that I should accept Spiteri as an honest witness, and that I should prefer his evidence to that given by Patterson, whose credibility counsel attacked. On this basis, counsel submitted that I should find that on 2 August, and now, Waleri owed the NAB nothing, as counsel contended in his submission referred to at [62](a).

273. It is unusual that the Court is asked to deal with such issues arising from the first meeting of creditors. That is to say, it is unusual for parties to be litigating such issues when the administration has proceeded no further than the holding of the first meeting. Doubtless, that is because of the limited purpose of the first meeting of creditors. The purpose of the first meeting, which s 436E(1) requires the administrator to convene, and under s 436E(2), is required to be held within five business days after the administration begins, is to determine whether to appoint a committee of creditors, and, if so, the members thereof. At that stage, an administrator's knowledge of the business, property and affairs of the subject company is likely to be limited, even significantly so. In any event, that is the purpose of the meeting, and it is a limited purpose in terms of its effect and consequences on creditors and the company. In addition, however, s 436E(4) provides that, at the meeting, the creditors may resolve to remove the administrator from office and appoint someone else as administrator. If a committee of creditors is appointed, the committee's function is to consult with the administrator. As such, it receives and considers reports from the administrator, and may reasonably require the administrator to provide a report, but it cannot direct the administrator in the performance of his functions.

276. Likewise with the second meeting, the administrator must act quickly. Section 439A(5) requires the administrator to convene the meeting within 21 days of the day when the administration begins (or 28 days in certain cases), subject to the power of the court to extend the time. The purpose of the second meeting is to consider whether to resolve that the company execute a deed of company arrangement, or that the administration should end, or that the company be wound up.[11] Of course, the creditors may resolve to adjourn the meeting. A common reason for adjourning is to allow a person (commonly a director) time to develop or refine a proposal for a deed of company arrangement. Lindholm's report for the second meeting provides an example of this.

279. To aid the creditors in determining the appropriate course at the second meeting, s 439A(4) requires the administrator to furnish his opinion about the three resolutions in a statement accompanying the notice convening the meeting. In this respect, the administrator has an important informing role. To facilitate the performance of this role, s 438A provides that as soon as practicable after the administration begins the administrator must investigate the company's business, property, affairs and financial circumstances, and form an opinion about whether it would be in the creditors' best interests for the company to execute a deed of company arrangement, or end the administration, or for the company to be wound up. It is readily seen why the administrators' requests for information in this case were important to the proper performance of their tasks. It is also readily understandable why the business of the second meeting might give rise to litigation.

282. In so far as legislation is able to do so, Part 5.3A of the Corporations Act contains provisions the object of which is to ensure that an administrator be speedily informed of matters concerning the company, and thereby better fulfil the role of informing the creditors of relevant matters and make a recommendation to them in relation to their decision at the second meeting. On being appointed (which is when an administration begins), an administrator has control of the company's business, property and affairs (s 437A(1)), and as soon as practicable the administrator must set about doing the things required by s 438A referred to above. Then there is the necessary and complementary obligation on a director under s 438B, which requires that a director must, as soon as practicable after the administration begins, deliver to the administrator all books in their possession that relate to the company, other than books that a director is entitled to retain, as against the company and the administrator, and tell the administrator where other books relating to the company are (sub-s (1)). Within seven days after the administration begins, or such longer period as the administrator allows, a director must give to the administrator a statement about the company's business, property, affairs and financial circumstances (sub-s (2)), called the report as to affairs. A director must attend on the administrator and give the administrator such information about the company's business, property, affairs and financial circumstances as the administrator reasonably requires (sub-sec (3)). The importance of these informing tasks is emphasised by the further provisions that a person must not fail to comply with them (sub-s (4)), and that an offence based on sub-s (4) is an offence of strict liability (sub-s (5)) subject to a defence of reasonable excuse (sub-s (6)).

285. Moreover, s 438C(1) provides that a person is not entitled, as against an administrator, to retain possession of books of the company. In s 9 "books" is defined to include a register, any other record of information, financial reports and financial records, however compiled, recorded or stored, and a document. It is a definition of the widest import. Section 438(C)(3) provides that the administrator may give to a person a written notice requiring the person to deliver to the administrator, as specified in the notice, books so specified that are in the person's possession. Such a notice must specify a period of at least three business days within which to comply with the notice (s 438C(4)). Failure to comply with a notice is an offence of strict liability, subject to the person being entitled, as against the company and the administrator, to retain possession of the books.

288. It may be noted, at this point, that the letters to Spiteri dated 2 August 2002 complied with the legislative requirements in that a period of seven days was specified as the time within which to provide the report as to affairs, and five business days was specified as the time within which to deliver the books of the company. Further, the various documents and records described in the schedule to the notice requesting delivery appear, by their description, to be books so defined. No submission to the contrary was made to me, or to the administrator, as I understand it. The further matters requested in the letters dated 2 August 2002 were the return of a questionnaire, and Spiteri's attendance at the first meeting. Spiteri did not comply with any of the requests. Save for the provision of a report as to affairs on 30 August, some 21 days late, Spiteri has continued in his failure to comply with the request to deliver the company's books and records and has not provided the duly completed questionnaire. At least that was the situation at trial, and I have no doubt that I would have been advised of any subsequent compliance.

291. I referred earlier to Lindholm's request to Knott, three days before the first meeting, to urgently provide him with the books and records of Waleri. Clearly, Lindholm was seeking information, as he was legally required to do, for the purpose of the administration and, in particular, to assist him for the purposes of the first meeting. The letter did not specify a time within which the documents were to be produced, as provided in s 438C(4). Perhaps that was because of the imminence of the first meeting. (It is possible that he considered that an accountant, as a professional person, would recognise the situation and comply with the request.) Nevertheless, as Lindholm correctly pointed out in his letter, under s 438C he was entitled to the documents requested. Knott Jones did not deliver any books and records to the administrator. There was not even an affidavit from Knott, or Louros, as to the firm's response, or non-response, to Lindholm's request. Again, I have no doubt that if production had been made subsequent to the trial I would have been informed of it.

294. One matter remains to be mentioned concerning the duties of an administrator. This relates to the administrator's letter to Spiteri dated 6 August 2002, referred to at [28]. Section 438D(1) and (2) provide as follows:-

"438D(1) [Offences in relation to company] If it appears to the administrator of a company under administration that: (a) a past or present officer, or a member, of the company may have been guilty of an offence in relation to the company; or (b) a person who has taken part in the formation, promotion, administration, management or winding up of the company: (i) may have misapplied or retained, or may have become liable or accountable for, money or property (in Australia or elsewhere) of the company; or (ii) may have been guilty of negligence, default, breach of duty or breach of trust in relation to the company; the administrator must: (c) lodge a report about the matter as soon as practicable; and (d) give ASIC such information, and such access to and facilities for inspecting and taking copies of documents, as ASIC requires. 438D(2) [Further reports] The administrator may also lodge further reports specifying any other matter that, in his or her opinion, it is desirable to bring to ASIC's notice."

298. That provision does not endow an administrator with a discretion as to the course of action he or she might take. "If it appears to the administrator" that an event or state of affairs of the type referred to "may have" occurred, the administrator "must lodge a report about the matter as soon as practicable" and provide ASIC with the required assistance. It is plain from the terms of his letter dated 6 August 2002 that, in relation to the business and assets of Waleri, there were circumstances which appeared to Lindholm to be within s 438D(1), giving rise to breaches of the Corporations Act, and which therefore "obliged" him to report the matter to ASIC. As noted, once it appeared to Lindholm that that "may have" been the case, he had no alternative but to report the matter to ASIC. It was not a duty to report at such time as may have been to his liking, or as may have accommodated Spiteri. He was bound to do so "as soon as practicable".

301. All of the matters referred to above provide the context in which the first meeting was held.

304. The first point of attack on the administrators concerned Lindholm's decision to allow the NAB to vote in the full amount of its claimed debt. I have regard to the passages in Vincent, White and Associates to which counsel referred, and to the more recent decision of Austin J in Young v Sherman.[12]

307. When the meeting was held, Spiteri had not delivered any of Waleri's books and records to the administrators. Nor did he attend the meeting, as required. Quite deliberately, I find, the administrators were starved of information to which they were entitled. In short, Spiteri withheld from the administrators information which must, one would suppose, have shed light on the identity of creditors and the amounts owed. Without assistance and information from Spiteri, what information did Lindholm have to rely on for the purpose of valuing claims for voting purposes? The short answer is the information to which Lindholm referred at [51]. He had what was given to him by or on behalf of persons claiming to be creditors. I referred to the information provided at [30]. It seems likely that the NAB had informed Lindholm of Valecave's payment on 2 August 2002, as it is clear that the NAB's claimed debt is calculated by taking account of that payment. He decided, on the basis of the information before him, to admit the NAB's claim at its full value for voting purposes. I conclude that in doing so, he was not in doubt that the proof should be admitted in the amount claimed. In the particular circumstances, I am of the view that the decision was open to Lindholm. I should add that even if I was of the contrary view I would not, at this stage, be inclined to set the decision aside, because of a lack of utility, or point, in doing so.

310. The matters relied on by counsel for the plaintiffs, and referred to at [74], carry little or no substance in my view. Kennedy Guy's letter dated 7 August 2000 was assertion pending instructions. And, while the assertion was repeated at the meeting, Spiteri's representative did not provide Lindholm with figures or a detailed analysis of Waleri's account with the NAB, and Fergusson held to the NAB's position. That left Lindholm in the position I have described above. Further, in my view there is no substance at all in the submission that contrasted Lindholm's decision at the first meeting with the recommendation in his report for the second meeting.

313. In any event, in a real sense, the first meeting is spent. What happened at that meeting does not control the second meeting. The fact that there is no committee of creditors and that the administrators remain in office does not affect the business to be dealt with at the second meeting, in particular, the claim which the NAB might lodge for the purpose of voting at the second meeting, or any decision which the administrators make in relation to it. Much water has now passed under the bridge, and much has been ascertained since the first meeting, particularly by the administrators. It seems from the report as to affairs that at the second meeting there will be additional creditors and some revision of earlier proofs of debt. But in light of the shifts to date, it cannot be certain that the creditors will be those identified in the report as to affairs. It would seem that the ATO will lodge a proof of debt. Then, it is possible that with reflection or revision the NAB may amend or recalculate its claim in some respect. I do not know what might happen in this regard. I do not mean to indicate a view that the amount claimed by the NAB should be amended or recalculated in any way. I merely make the point that the proofs of debt lodged for the second meeting will differ both as to the identity of the creditors, and as to the amounts claimed, from those lodged at the first meeting.

316. As I have already observed, it is unusual to have an attack of the present sort in respect of the first meeting. The reason for the attack is that Spiteri is trying to prevent an administrator, who he regards as unfriendly, from accessing the books and records of Waleri and, in aid of achieving that aim, is seeking a curial adjudication of the amount, if any, owed by Waleri to the NAB, with a view to then paying the amount so found. I find that as a fact, having observed Spiteri give evidence, and after reflecting on all of the evidence in the proceeding.

319. The second aspect of the plaintiff's case is the application to remove the administrators and replace them with another person nominated by Spiteri. Nothing I say in this judgment is a reflection upon Spiteri's nominee. In my view, the plaintiff's case on this aspect is without substance and is entirely self-serving.

322. To succeed in the removal application the plaintiffs must establish that the removal would conduce to the better conduct of the administration. I would take this test to comprehend what in some cases has been referred to as an alternative or different test, of a reasonable apprehension by a creditor of a lack of impartiality in the administrator as a result of association with the company or a creditor.[13] Whether this is so makes no difference to the result in this case.

325. The plaintiff's submission that Lindholm approached his work in a way that was partial to the NAB, as compared to other creditors, relied on the particular matters referred to at [75]. Otherwise, there is no evidence of association between the administrators and the NAB that could found a reasonable apprehension or perception of impartiality.

328. As to the matters referred to at [75], I conclude as follows. None of them, whether taken by themselves or together, warrant the conclusion that the administrators approached their task in an impartial way. The point made about the entry in the file note is quite empty. It is merely the recording of an observation. The main point seemed to be the letter to Spiteri dated 6 August 2002. That was said to represent a pre-judgment against Spiteri. That submission misapprehended the administrators' duties and obligations under s 438D. As I have noted, the administrators were required to act under s 438D if it appeared to them that a situation of the type described in the section may have occurred. What Lindholm referred to in his letter dated 6 August 2002 was a serious matter. He adverted to it again in his report to creditors for the second meeting. The submission of counsel for the plaintiffs challenged Lindholm's view in the sense that he had no reasonable basis on which to make it. It was Lindholm's view, on his investigations, that what he advised appeared to be the case. It is not that he said it was the fact, it was what appeared to have happened. The distinction is obvious, and must have been clear to Spiteri and his advisers.

331. In my view the circumstances confronting the administrators were such as to reasonably give rise to the concerns, or to the "appearance", of a transfer of Waleri's assets and breaches of the Corporations Act expressed in Lindholm's letter dated 6 August 2002. In his first affidavit Lindholm said that he still had those concerns. Indeed, having regard to the failure of Spiteri to deliver up Waleri's books and records and provide other requested information it is difficult to see how his view could have changed.

334. It has always been open to Spiteri to disabuse Lindholm of any error in his view on this matter by placing any relevant information before him. And, in turn, Lindholm could advise ASIC of any such information. Spiteri has not taken that course. It is to be noted that in his first affidavit sworn 21 August 2002, Spiteri referred to Lindholm's letter dated 6 August 2002 and said:

He brought forward no facts and offered no explanation of any relevant circumstances which might indicate that Lindholm's view was incorrect. The silence is clearly deliberate and, if anything, serves to tell against Spiteri, not the administrators.

339. The final point relied on was that Lindholm ignored Guy's letter dated 7 August 2002. The submission is an assertion. I do not accept that the letter was ignored.

342. In these circumstances, and regarding the matter overall, I am firmly of the view that the plaintiffs have failed to establish that the administrators should be replaced by another person. Their removal would not conduce to the better administration of the company, and the allegations of impartiality lack a reasonable basis. The administrators have sought to conduct the administration properly in accordance with the law but have been hampered by Spiteri's failure to cooperate.

345. That leaves the third aspect as to whether the NAB is, or was on 2 August 2002, owed any amount by Waleri. Notwithstanding that this question was described by counsel for the plaintiffs as "the central issue" in the case I am of the view, in the exercise of my discretion, having regard to the circumstances of the case, that I should not determine the issue. One relevant circumstance in this respect is Spiteri's continued withholding of information concerning Waleri. The appropriate and preferable course is for the administration to proceed to the second creditors' meeting, with the present administrators in office, and for the business of that meeting to be considered and resolved in light of the materials then before the creditors and the administrators. It cannot now be known what the state of that information will be. Apart from the matters I have mentioned concerning creditors, Spiteri must surely by then have met the lawful requirements of the administrators by providing them with the information requested of him.

348. I should say, to make it clear, that I do not make a finding one way or the other whether Waleri is, or was on 2 August 2002, indebted to the NAB in the amount it claimed in its proof of debt, or in any other amount, or whether there is no debt at all. That does not mean that I seriously entertain a view that there is no debt at all or that I have a view as to the amount of any debt. It is simply that in the circumstances it is not appropriate to enter upon a determination of the issue. The administration should take its course.

351. I conclude with a comment concerning the statement of counsel for the plaintiffs that "the central issue" in the case was whether Waleri was indebted to the NAB. It was the central issue because, the plaintiffs contended, if there was not a debt the administration must be terminated. The contention was no doubt made with an eye to the fact that the instrument by which the administrators were appointed referred only to a failure to pay money. But, as counsel for the NAB pointed out, the case is not that simple. That is because a failure to pay money was not the only ground which could trigger the NAB's rights under the debenture to appoint an administrator. The debenture described a number of events of default. They extended to more than the failure to make a payment.

354. Clause 4.3 contained the usual provisions as to the mortgagor not disposing of its undertaking or assets without the consent of the bank. Referring to two paragraphs only in that clause, the prohibition was not to dispose of, part or deal with the whole or any major part of the mortgagor's undertaking (para (a)), and not to dispose of, part with or deal with any Floating Charge Property except in the ordinary course of, and for the purposes of carrying on, its ordinary business (para (b)). These provisions were reinforced by negative undertakings in cl 6.2(a) that the mortgagor not, without the consent of the bank, do or permit any act, matter or thing which would result in any contravention of cl 4.3 in relation to any Mortgaged Property which was defined to mean the undertaking of the mortgagor and all its property and assets whatsoever and wheresoever both present and future. Clause 12 set out and thereby identified a number of events as Events of Default under the debenture. They include default in the payment of any Secured Amounts (para (a)); failure to comply with the debenture or any collateral security or any agreement of any kind with the bank (para (f)); or if an authorised officer of the bank forms the reasonable opinion that the bank has been prejudiced by the Mortgaged Property deteriorating or becoming less valuable, or the mortgagor does or permits any act, matter or thing which, in the opinion of the bank, results in the Mortgaged Property deteriorating or becoming less valuable, or which, in the opinion of the bank, results in any of the Mortgaged Property being in danger of being taken or held under any process or otherwise being in jeopardy (para (k)). It was submitted by counsel for the NAB that, as appears to the administrators to have been the case, Waleri has disposed of property the subject of the mortgage. As to an opinion of the bank, as referred to in para (k), it will be recalled that Fergusson was concerned that assets of Waleri might be transferred to Econo-Mix Pty Ltd for either no, or an inadequate, consideration.[14]

357. What counsel was leading to was that the apparent breach of the debenture constituted by an unauthorised disposition of the business or assets of the company provided a ground on which the NAB could rely to support the appointment of the administrators. In other words, even though the only ground specified in the instrument appointing the administrators was the failure to pay money, the NAB could support the appointment by pointing to other breaches of the debenture which constituted an event of default and a basis on which the NAB was entitled to make the appointment.

360. I merely note the submission. I do not base my decision on it. Nor do I make any finding as to whether there has been any unauthorised disposal by Waleri of its business or assets. The submission highlights the failure of Spiteri to condescend to provide an explanation of the administrators' concerns, whether by provision of the books and records or the questionnaire or otherwise. If he had provided an explanation it might have appeared that there had not been any such event of default as has appeared to the administrators to have occurred. But Spiteri not having done so, the possibility remains, as Lindholm has attested. The existence of that possibility rendered it unsatisfactory to move to a final determination of the debt issue on the present application, when other substantive and related issues would remain unconsidered. Doubtless, as with other matters, the position will be clarified when Spiteri has furnished the administrators with the information requested of him.

363. For these reasons, the plaintiffs have failed to establish any entitlement to relief. I will hear counsel on the terms of the orders for dismissal of the proceeding, the re-convening of the second meeting, costs and any other matters that seem necessary.

[2] An event of default under cl 17(a) was constituted by Waleri, during the term of the facility, failing to pay the face value of any bill on its maturity date.

[3] The affidavit has been marked as exhibit N.

[4] [1994] FCA 972; (1994) 13 ACSR 99.

[5] (1985) 10 ACLR 419 at 424.

[6] (1998) 28 ACSR 93 at 101.

[8] It must be interpolated that counsel's statement regarding Lindholm's recommendations did not accurately represent that part of Lindholm's report; see at [46].

[10] (1994) 13 ACSR 544 at 550.

[12] [2001] NSWSC 1020; (2001) 40 ACSR 12 at [77]- [98].

[13] See Dallinger v Halcha Holdings (1995) 134 ALR 178 at 183-184; Re Central Springworks Australia Pty Ltd; Tubemakers of Australia Ltd v McLellan [2000] VSC 145; (2000) 34 ACSR 169 at [11]- [12].